when does a hobby become a business?

noser

I am a keen cake maker, and a full time mum.I have recently completed a cake decorating course, and find I am pretty good at it! gradually I am being asked to do more cakes, and I enjoy doing them.But can I make make some money out of it? At what stage do I need to declare myself as self employed? At the moment I make a tiny profit on the cakes I make, but know I could , and probably should, charge much more for what I am doing.I have just finished a 3 tier wedding cake, for a friend, and have spent hours on it. A realistic price would be about £250 -£300 . But I don't want this hobby to become a chore, and I am worried that taking the step up to self employment could do that. I don't envisage making my fortune (!) - really this is a 'Pocket money' venture! I do have a basic food hygiene certificate, but otherwise no special qualifications. I don't want to be doing anything illegal - or that the inland revenue could come after me for, and I would value the pocket money, so do I have any choices?
Many thanks, Kate

johnllew

Everyone is entitled to earn £5225 this tax year before paying tax. If your profits from this venture are demonstrably well below this figure AND you have no other taxable income, I wouldn't worry about it. Just keep sufficient records of income & expenses to show how much you've made if the Revenue enquire but they are unlikely to waste their time on you.

Enjoy the pocket money.

Bean_Counter

I agree with Johnllew. It can be a grey area about when does a hobby become a trade regarding intention to make a profit etc. Self-assessment tax returns also say to contact your tax office if you are unsure whether you are carrying on a business or not.

However, if your circumstances are as Johnllew suggests, I suspect you'll be fine.

WHA

johnllew wrote: »

Everyone is entitled to earn £5225 this tax year before paying tax. If your profits from this venture are demonstrably well below this figure AND you have no other taxable income, I wouldn't worry about it. Just keep sufficient records of income & expenses to show how much you've made if the Revenue enquire but they are unlikely to waste their time on you.

Enjoy the pocket money.

Yes, but if you are earning money, you still have to register even if your income is below that limit. The question as you rightly say is "when" does it become a business rather than a hobby. This depends on your circumstances - certainly when you start to advertise or do it for people other than your family and friends, you are clearly "in business" and have to register for tax, likewise when you charge more than it costs you to make, i.e. the price is more than the ingredients and the proportion of your power, kitchen, etc - i.e. when you start charging for your time.

full-time-mum

I started mystery shopping this year and have earned around £100 but I still had to register and now have a tax form to fill in.

You have 3 months (I think) to register as self-employed otherwise you can get fined. I'd say better safe than sorry. The tax office do a helpful 1/2 day course to get you started and help you work out what is taxable and what can be offset.

I would advise you to keep records as you go along and don't forget that interest from savings etc counts as well.

Also remember that you will need hygene certificates and you kitchen licensed too.

I am baking cakes for a friend and we are keeping it as a personal arrangement and I'm not charging much more than the cost of ingredients so I'm not treating it as an income but I am consdering whether to advertise at school which will mean going through the proper channels and charging more.

You should be able to make a good profit if you set up in business - you already seem to have business from word of mouth - I wish I could do the icing thing but, sadly, I'm only good at the baking bit which doesn't bring in much, if any, profit.

Good Luck, I hope that you have the courage to bite the bullet and that it is successful for you.

3plus1

A hobby becomes a business when you think you can start making money from it. You have three months to register as self-employed from when you start trading. If your turnover is low, you can opt out of paying NI though. You only have to become VAT registered when you're earning a fortune, so that's another thing you don't have to worry about.

For me, the biggest issue would be ensuring you had all the right certs and stuff for your kitchen - unfortunately not my area of expertise so I can't advise there.

If you love your hobby, turning it into a business shouldn't kill the joy for you. Be brave.

noser

Thanks everyone for your comments. I am going to make an appointment with Business Links to discuss this further. Am still not sure if I want to go down the self employed route - the 'officialness' of it scares me - but it would seem if I am going to make any money out of it, then thats what I'll have to do.