A hobby can provide enjoyment and earn extra money. Making occasional sales does not automatically mean that you run a business, but your tax position may change if the activity becomes regular, organised and focused on profit.
This can apply to activities such as making crafts, repairing cars, selling collectables, creating online content or restoring items for resale.
Is It a Hobby or a Trade?
HMRC looks at the overall nature of an activity when deciding whether it amounts to trading. Each case is considered on its own facts, so no single factor provides a definite answer.
An intention to make a profit can indicate trading, particularly when you buy or make goods specifically to sell. Regular transactions, advertising, keeping stock and operating in an organised way can also make an activity look more like a business.
The way you prepare an item for sale may also matter. For example, buying furniture, restoring it and selling it for profit suggests a commercial purpose. In contrast, occasionally selling unwanted personal possessions will not usually count as trading.
HMRC refers to these indicators as the badges of trade. They help HMRC distinguish a business from a personal interest, although it considers all the circumstances before reaching a decision.
Selling Items Online
Selling personal belongings through an online marketplace does not usually create an Income Tax liability. This might include clearing unwanted clothes, furniture or household items from your home.
The position changes when you buy or make goods with the intention of selling them for profit. Regularly purchasing items from shops, auctions or car boot sales for resale may count as trading.
Online platforms may collect information about sellers and report it to HMRC. However, a platform report does not automatically mean that you owe tax. Your responsibility depends on the nature of the activity and the income you receive.
The Trading Allowance
Individuals can receive up to £1,000 of gross trading income in a tax year through the trading allowance. Gross income means the total amount received before deducting expenses.
If your total gross trading income does not exceed £1,000, you may not need to tell HMRC. Exceptions apply, so you should check your position and retain accurate records.
If your gross trading income exceeds £1,000, you normally need to register for Self-Assessment. You can then choose between deducting allowable business expenses or claiming the trading allowance. You cannot claim both against the same income.
The allowance covers income from self-employment, casual services and hiring out personal equipment. It does not apply in every situation, including certain income received from partnerships, employers or connected companies.
The Property Allowance
A separate £1,000 property allowance may apply to income from land or property, such as renting out a driveway. If you receive both trading and property income, you may qualify for a separate allowance for each.
When gross property income exceeds £1,000, you may need to contact HMRC or report the income through Self-Assessment. Different rules can apply to jointly owned property and income covered by the Rent a Room Scheme.
Keep Clear Records
Keep records of all sales, income, costs and platform fees from the beginning. Good records make it easier to monitor the £1,000 threshold and calculate any taxable profit.
You should also review your position as the activity grows. A small hobby can develop into a business gradually, and your responsibilities may change before you recognise it as a formal enterprise.
Get in touch with Cobble
Unsure whether your hobby has become a taxable business? Get in touch with Cobble today for clear and practical tax advice.