Income tax on hobby work?

[LilyB]

Hi! I do bespoke design and creation of stuff made from wood - cabinets, desks, anything really. I'm currently full time at my day job, and was wondering if I have to pay tax on the money I make from woodwork - I don't do it for a source of income so I was wondering how it would be taxed - is it the same as income anyway? I've been looking at sites like tax calculators but really still not sure how it works and was hoping someone here is in a similar situation or has been and can help me out, it would be much appreciated

 

[Stormer1940]

If you are working full time already and also making stuff and selling it then it would be classed as a second income so yes it is taxable.

https://www.gov.uk/income-tax-rates

Your tax-free Personal Allowance
The standard Personal Allowance is £11,850, which is the amount of income you don’t have to pay tax on.

 

[MikeG.]

Don't forget that you should only pay tax on the profits, not the income. In other words.....sales income less expenses (ie wood, workshop consumables, advertising, maybe rental, and so on) is what you should be declaring. In some cases you can be writing down capital costs (say for machinery) against income, but that is a job for an accountant.

 

[Stormer1940]

Don't forget that you should only pay tax on the profits, not the income. In other words.....sales income less expenses (ie wood, workshop consumables, advertising, maybe rental, and so on) is what you should be declaring. In some cases you can be writing down capital costs (say for machinery) against income, but that is a job for an accountant.

Bloody accountants :roll:

It's the full time job that becomes the issue because most people will be earning over tax free allowance, so either you do the woodwork for the love of it or you make a profit which as MikeG has mentioned is taxable. If you are earning under that threshold then you can use the surplus to avoid tax.

 

[Steve Maskery]

You should register as self-employed if you TAKE any money for your woodwork.
The upside is that all your tools and machinery are tax deductable and you can also claim depreciation, an allowance for PHL, travel and lots of other expenses. So if you have a small turnover it is not difficult to show, legitimately, that you don't make a profit out of it. Indeed, if you make a loss, it will be counted against your PAYE payments and you may get a bit back.
Just make sure that you record everything, and I do mean everything, so that HMRC don't have any cause whatsoever to make your life a misery.
If you are straight with them, they will be straight with you, unless you happen to get assigned to Scott the Imbecile. Don't ask, it was a long time ago.

Edit - Mike beat me to it.
Edit - So did Stormer. Can I post this flippin' post now?

 

[Tasky]

Does one have to tax-declare any money made from selling one's junk on eBay or at a car boot sale?
If not how is this any different?

 

[sunnybob]

Whatever you are selling off, you have already paid for, so its not an income.
If you are DOING WORK to make an income its taxable.
E traders who are buying and selling as WORK for profit are also taxable on their income

 

[MattR]

Does one have to tax-declare any money made from selling one's junk on eBay or at a car boot sale?
If not how is this any different?

Technically speaking, if you sell your junk for more than you paid for it, then I believe so, yes. (Though I think it may then be capital gains not income tax).

If you make any money from anything you do, assume that HMRC wants a slice I am afraid.

 

[Stormer1940]

Does one have to tax-declare any money made from selling one's junk on eBay or at a car boot sale?
If not how is this any different?

There are plenty of people who go to car boots or auction houses to find bargains to sell on, they even do it with old wood working machinery and tools. That income is taxable as you are making a profit from it, doing it once in a while probably goes unnoticed but doing it all the time you are in effect running a business where profits are taxable.

 

[Chris152]

This article's helpful:
http://accountshouse.co.uk/newsletter/i ... e-to-hmrc/

It says:
'...please note that from April 2017, the government is to introduce a new £1,000 allowance for property income and a £1,000 allowance for trading income. Individuals with property income or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance. So, if your hobby does not produce income above £1,000, it can be ignored for tax purposes after 5 April 2017.'
Read the rest of that article and maybe it'll be clear how this applies?

 

[Tasky]

Whatever you are selling off, you have already paid for, so its not an income.

I already paid for the wood. I'm just selling that wood off.
I'm not even selling all of that wood, as half of it is lying on the workshop floor, as shavings, sawdust and chisel-chips!!

If you are DOING WORK to make an income its taxable.

It's not work, it's a hobby...

Probably won't fly, especially if you're selling lots of things, but I like to challenge laws!

 

[profchris]

There is quite a lot of incorrect information here. And setting out to challenge tax law is not for the faint hearted because HMRC is empowered to level substantial penalties in addition to claiming the tax.

1. Income in the form of profits from running a business is taxable. As correctly stated, that is receipts minus taxable expenses. Cost of wood, consumables (glue, screws, finishes etc). Tools are in theory capital expenditure and you can only claim depreciation in calculating profits. In practice HMRC will not notice small costs, but big machines ...

2. You can't set off business losses against employment income, sorry Steve.

3. If you buy stuff for yourself, decide later you don't want it, and resell at a profit that's capital gains. Only taxable above something like £3k (check this figure!). If you make £3k buying and reselling lots of items, HMRC will probably decide you have a business there.

4. The £1k exemption is useful but check it actually happened! HMRC might have delayed it.

 

[Steve Maskery]

2. You can't set off business losses against employment income, sorry Steve.

Really? I thought you could. I'm sure you can offset losses in one year against profits from a later year? There is certainly some sort of juggling you can do.

I didn't mean to mislead anyone.

 

[Chris152]

4. The £1k exemption is useful but check it actually happened! HMRC might have delayed it.

This seems to suggest it has happened, but I really don't have a clue beyond what I read in that article...
https://www.gov.uk/guidance/tax-free-al ... ing-income

 

[powertools]

In trouth a woodworking forum is not the best place to ask for tax advice, you just get advice from people who don't know any more than you do.
HMRC have help lines to give advice.

 

[Lons]

2. You can't set off business losses against employment income, sorry Steve.

Really? I thought you could. I'm sure you can offset losses in one year against profits from a later year? There is certainly some sort of juggling you can do.

I didn't mean to mislead anyone.

Employment income is different from business profit Steve so if you have paid employment as well as your business income they are as far as I know treated separately. Certainly what I was advised when in that position in the first year of my business.

I had 3 lots to account for at one stage, employment, own business and part time lecturer contract paid gross. Was a PITA for a while.

 

[Rorschach]

In trouth a woodworking forum is not the best place to ask for tax advice, you just get advice from people who don't know any more than you do.
HMRC have help lines to give advice.

Well that's not true, I am sure there are plenty of people here who could be in a similar position and give good advice.

 

[powertools]

That's fine but tell me which reply to this thread has given accurate advice.

 

[custard]

tell me which reply to this thread has given accurate advice.

Pretty similar with sharpening threads.

 

[profchris]

2. You can't set off business losses against employment income, sorry Steve.

Really? I thought you could. I'm sure you can offset losses in one year against profits from a later year? There is certainly some sort of juggling you can do.

I didn't mean to mislead anyone.

I don't think anyone would arrange their tax planning just on your say so, or even mine. I only really know about taxing online multinationals

You can carry businesses losses forward, but only for that business. There's a time limit of course, but it's useful when starting out.

The HMRC guidance is pretty good but you still need to be reasonably good both with numbers and fairly complex documents. For those who aren't, it's worth finding how much an accountant would charge (But only if you're turning over thousands).