How to know when your hobby has become a business

Many of us will have a hobby, creating a product or service, that at first, friends and family start to request, then a neighbour then the friend of a neighbour… But how do you know when HMRC will see your hobby as a trading company? And when will you be liable to register with HMRC?

It comes down to the intent behind your sales and the responsibility that will be placed on you once you start selling your product or trade. If you believe you should be listed as self-employed, or need help turning your hobby into a trading company, ask Aston Black for help and advice today.

Regularity and Profit

These are the two most important words when you are considering whether your hobby has become a business. If you are making a profit on your hobby, but only once in a blue moon, it would not be considered a business, just as if you regularly sell your product or trade, but only to cover your own costs, you won’t be able to class yourself as a business owner.

Let’s say, you bake amazing cakes. Once friends of friends start hearing of your incredible bakes and designs, and you are making four cakes a month, while making a profit you may be seen as a business owner by HMRC.

Are You Held Responsible for Quality?

Another way to clarify whether your service counts as a hobby or a business is to figure out whether you are responsible for the quality of the service you offer. Are you responsible for correcting an error within an order?

We all have at least one fussy friend, but let’s look at the baker analogy again. If you entered into a contract, whether this is a verbal or written, to make a cake for a fixed a price and your customer was unhappy, do you feel you have the responsibility to refund or remake the cake that was ordered? If so, it looks like your hobby may have progressed into a business, and you are not dealing with a fussy friend, but a client.

Would You Pay Other People to Help Fulfil Orders?

Do you feel that you would employ someone to fill orders that you couldn’t fulfil alone?

If someone has paid you or will be paying you, an agreed price for you to produce a product or service of an expected quality and within a designated timescale, you may feel an obligation to fulfil that contract.

Once again, we will take the example of the baker. Someone has asked you to bake a birthday cake for a birthday party taking place in a weeks time, but unexpectedly, you are unable to work for the next week. If you had a hobby, you could apologise and nothing more would come of it. If you are trading then you may consider paying someone else to complete the order on time, retain the sale and maintain the working relationship.

A Brief Summary

  • If you are trading regularly, while turning a profit, you may be trading.
  • If you are responsible for making right on any mistakes you may have made when selling your service, you may be trading.
  • If you feel as if you would pay another person to fulfil orders, you may be trading.

If you want to kick-start your hobby into a small business, Aston Black can guide you along the way.