When does a hobby turn into a business?

LostMyMSEAccount

A few years ago as a young lad at Uni, I developed a knack for a fairly specialist skill which I tended to do for friends for a crate of beer. Until recently, I hadn't thought much about it, but after helping someone recently I've all of a sudden been getting a lot of people asking if I would consider doing it as a paid venture. Payment in the region of £50-£60 per time.

I already have a decent job so no real interest in stopping that and doing this full-time, but I am happy to do it on weekends as a hobby or (if it's straightforward enough) small low-income business venture.

I just wanted to understand the rules around hobby businesses and actual small businesses, before I go into this. The last thing I need is a HMRC investigation because of something I'm not that bothered about doing. I understand that £1000 turnover is tax free and can be declared hobby, which is basically income before costs + expenses. Really, there are very few expenses in this line of work other than a small amount of electricity, so calculating my profit is easy enough (I take £50, it's £50 profit)

Aside from keeping track of actual sales and money taken in case HMRC ever request them, do I have to send in self-assessments declaring yearly turnover? I don't currently do this as I'm PAYE. Do I have to provide customers with receipts? Do I have to trade under my own name or can I setup a Facebook page with an acronym or something? Are eBay and Gumtree out of the question as I won't be registered?

Really, I'm fairly clear on this that if it is too much effort, I won't be doing it. It remains a hobby and as a niche specialist skill, is unlikely to garner enough interest to make it financially viable if I have to subsequently jump through a dozen loopholes. 

I've been told it might be easier if I registered as an actual business? Happy to take advice on this before I go into the deep end.

Thanks

MalMonroe

My nephew is both employed and self-employed and sends in self-assessments every year. He's registered as self employed and is also taxed via PAYE.

It's better to register as self-employed if you intend to do whatever it is you are doing long-term and then there won't be any HMRC investigation. Being honest and up-front at the outset is the best way forward. No matter how much you think you will or will not earn.

Your income tax will be sorted out by HMRC (and although they make mistakes, they do eventually get it right. I know these things, they've happened to me!) via your NI number.

I registered as self employed two years ago but my income has yet to go over the personal allowance (I know, still poor!) but it's no big deal just to fill in a self-assessment online, HMRC keep telling me I owe no tax and that's okay. But at least they know that I'm on the radar and not under it.

Did you mean acronym or pseudonym? Whatever, if you're only doing it as a business title and not to try and avoid paying tax, there's no harm in that, I shouldn't think. As long as that's what you declare to HMRC.

LostMyMSEAccount

I've done some additional reading. Hobby businesses do not need to send a self-assessment, so long as the turnover (NOT PROFIT) is below £1000 which is obviously nice as it makes the overall maintenance fairly straightforward. However, as per a typical business, you need to keep logs of payments which is fair. It's still not clear what kind of 'guarantee' you have to provide (i.e. do customers get rights from a hobby business?). I suspect anything where the exchange of money has occurred, means some warranty has to be provided. How exactly someone providing an arts and crafts business could do that, I don't know, however in my case I actually am in a position to somewhat guarantee my work.

I've been looking into self assessment and actually it doesn't look as painful as I thought it would be, to do alongside my PAYE. I'm definitely not trying to be dishonest, in fact, quite the opposite. My main job is secure and pays well enough, so I'd be foolish to go into this looking to do it on the sly. Too much to lose. I'd also rather know the full facts up front than be one of these guys who says in 4 years "oh i didn't realize i was breaking the law" and have to trawl back through months and months to work out what is what. Equally, I want to make this as pain-free as possible. A lot of the work I'll be getting is through word of mouth and/or people who get hold of my details, it's definitely not something I'll be chasing. I don't have that much time to commit.

I'm going to do some more reading on self-assessment and what I need to know and keep up with. I've read that I can use a trading name, so long as it's not intentionally misleading and I am transparent about my actual sole trader name. That works for me.

Jeremy535897

A business becomes taxable at the point the "badges of trade" tests indicate one exists. See:
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim20205

A business with a turnover of £1,000 or less is not necessarily a hobby business, but it does not need to be reported and is not taxable.

If you need to register as self employed, see:
https://www.gov.uk/register-for-self-assessment/self-employed

LostMyMSEAccount

Thanks Jeremy, I'll have a read and feedback further.

Pennywise

Also, don't confuse the HMRC tax rules with the law side of things, i.e. commercial/contractual law.  Whether or not you have to register with HMRC for tax, you will still have to comply with all relevant laws, i.e. business names laws, liability to your customers for injury, loss or damage, etc.  The latter is more a matter of your own risk assessment as to what "harm" could come to your customers by using your products/services - you may like to consider insurance (product liability, public liability etc) if it's possible that your customers (or others) could suffer loss as a result of what you do for them.  There is no "de minimis" or "hobby" exemptions for harm done to others.

LostMyMSEAccount

Understood. I'll do some more reading.

pjcox2005

I think you're probably overthinking it. HMRC dealt with above but any concern just write a letter stating you've started a hobby business, income less than £1,000, you'll keep an eye on it but for now no need for a self-assessment.

As for the rest, unless what you do risks harm to someone (e.g. injury from an activity, food poisonings from cooking, realistic chance of fire if faulty electrics) then I would just go with it rather than worrying about practicalities (personal insurance would be key in those examples). Just when agreeing work with people make it clear you do this as a paid hobby, the timescale you can complete work in around your full time work, what service/good you'll give to them and the cost.

If you're clear on that then you should have less issues, and if a fault is present in one then just refund or replace rather than get into arguments and move on unless you think it could be a frequent occurrence. If the business builds then you can reassess.

Jeremy535897

There is no need to write a letter to HMRC if you have self employment, hobby or otherwise, that has turnover of £1,000 or less. For Consumer Rights legislation
“Trader” means a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf.

Sandtree

pjcox2005 said:

As for the rest, unless what you do risks harm to someone (e.g. injury from an activity, food poisonings from cooking, realistic chance of fire if faulty electrics) then I would just go with it rather than worrying about practicalities (personal insurance would be key in those examples). Just when agreeing work with people make it clear you do this as a paid hobby, the timescale you can complete work in around your full time work, what service/good you'll give to them and the cost

Personal insurances won't cover anything where there has been the exchange of monies 

There is no such thing as a "paid hobby", as soon as money is involved its a business with the overheads that involves.

pjcox2005

Sandtree said:

pjcox2005 said:

As for the rest, unless what you do risks harm to someone (e.g. injury from an activity, food poisonings from cooking, realistic chance of fire if faulty electrics) then I would just go with it rather than worrying about practicalities (personal insurance would be key in those examples). Just when agreeing work with people make it clear you do this as a paid hobby, the timescale you can complete work in around your full time work, what service/good you'll give to them and the cost

Personal insurances won't cover anything where there has been the exchange of monies 

There is no such thing as a "paid hobby", as soon as money is involved its a business with the overheads that involves.

Sorry, bad phrasing, I meant public liability insurance but couldn't think of the name at the time. I.e. some insurance that protects the individual in case of fault in what they are providing. As with all insurances, different types of businesses will have very different risks associated with them.