It sounds ideal – making a career doing something that you absolutely love. Most of us, at some point, have probably wondered if we can make a living from our hobby and sadly, many will have concluded that while it may be fun, it simply won’t generate a decent living.
But for some, the dream does become a reality. According to Barclays, one in six small business owners started out by turning their hobby into an income, whether that be baking, crafting, gardening or even horse riding.
Why make your hobby a business?
There are lots of reasons why you might want to make a business from your passion. For some, it’s a lightbulb moment when something sparks a realisation that they could be doing what they love for a living. Others may have spent years in a profession they didn’t really enjoy – and reached a stage where it’s now or never.
The past year has seen a surge in the number of people setting up their own business, many of which were founded as a result of redundancy. The economic uncertainty caused by the Covid-19 pandemic has been a turning point for many people, who either lost their job, or who had enough of being furloughed and decided to strike out on their own.
Others may have been operating something of a side hustle alongside their full-time job to bring in some extra cash. Activities such as dog walking, freelance writing and selling vintage clothes online can all be undertaken around a 9-5 job – but if they take off, may prove more lucrative than a full-time position.
A taxing subject
However, once your business does start to make money and you approach the current trading threshold, it’s time to think about tax.
The current trading allowance permits a £1,000 limit in a single tax year (April to April) on turnover that all UK taxpayers are allowed to earn tax free from hobbies or projects undertaken in your spare time.
For income over £1,000, the allowance can either be deducted or actual expenses can be deducted, which is particularly useful if your expenses are less than £1,000.
If you’re serious about wanting to make your hobby a business, and you’re looking to exceed the £1,000 limit, you will need to register for self-assessment so you can report your income and expenditure to HMRC.
In addition to registering as a sole trader, you will need to keeping accurate records of income and expenditure to enable you to prepare your tax return before the self-assessment deadline. HMRC will then calculate how much tax you need to pay in the form of income tax and national insurance.
Preparing your tax return can be a stressful time for any business owner. If in doubt, it’s wise to enlist the services of a friendly accountant to help you through the process.
At Relative, we have years of experience in helping people file their tax returns on time – get in touch to discover how we can help you make the most from your business.