If you\u2019re asking the question above, it shows that you\u2019re getting a lot of interest in whatever it is you do in your spare time. First of all, the team at TreyBridge Accountants would like to say congratulations, as there\u2019s nothing quite like making money from a skill or craft that you enjoy.<\/p>\n
Now, to answer the question of whether you need to pay tax on income from hobbies, it all depends on the scale of your sales activity. Here\u2019s a handy guide to help you understand what you need to do.<\/p>\n
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You may not realise that there\u2019s a fantastic thing called the Trading Allowance in place. This gives you the ability to sell up to \u00a31,000 of items each tax year without paying tax on them.<\/p>\n
A common example is someone who creates jewellery and sells it on Etsy but only now and then, with the turnover (the amount of money they make) being less than \u00a31,000 a year. As long as their sales remain below the threshold, they don\u2019t have to register for self-employment or pay tax on the profit.<\/p>\n
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If your hobby is getting a lot of attention and more people begin to buy your products, you need to keep track of how much money you make. Once you exceed the \u00a31,000 Trading Allowance, you\u2019ll have to register for self-assessment if you haven\u2019t already.<\/p>\n
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Not necessarily, as we then have the Personal Allowance. This is the amount you can earn without paying any tax on it, which is currently (for tax year 2021\/22) \u00a312,570. This allowance considers all of your income, including that from employment, self-employment, renting out property and so on.<\/p>\n
If you stay below the threshold, you\u2019ll need to submit a self-assessment tax return each year to HMRC but there won\u2019t be any tax to pay.<\/p>\n
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Many of our clients started off selling their creations now and then, only to find that there was high demand. This often results in the individual increasing output, which in turn leads to it transitioning from a hobby into an actual business. This could be as a sole trader or even involve the founding of a limited company if required.<\/p>\n
In turn, this means that you\u2019re now a business owner and you\u2019ll most likely start focusing on new goals, such as increasing sales, improving cash flow, hiring freelancers or taking on staff, and developing your brand as it grows.<\/p>\n
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Whether you\u2019re just selling a few items and want some tailored advice, plan to ramp up your sales activity and need a consultant, or have reached the tipping point and require an accountant to manage your tax, the specialists at TreyBridge are ready to help.<\/p>\n
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