Income tax on hobby work?

[bourbon]

An accountant (if they are any good), should be able to recoup the cost of employing them. If they aren't doing that, they aren't doing their job properly!

 

[Rorschach]

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

You never get a succinct answer on a forum, but you get reasonable advice, more importantly though it gives you ideas and a direction to look in.

 

[--Tom--]

HMRC gives guidance on all of this, and I would read that first, eg here:
https://www.gov.uk/working-for-yourself

You could be classed as a trader if you sell goods or services. If you’re trading, you’re self-employed.

You’re likely to be trading if you:

sell regularly to make a profit
make items to sell for profit
sell online, at car boot sales or through classified adverts on a regular basis
earn commission from selling goods for other people
are paid for a service you provide
You’re probably not trading if you sell some unwanted items occasionally or you don’t plan to make a profit. You can’t use any losses you make as part of a hobby to reduce your tax bill.

Then for you to decide if it counts as trading and then how to set up properly e.g. if you decide some trader the steps are here:
https://www.gov.uk/set-up-sole-trader

If you are in any doubt meeting with an accountant means they can advise on what would be best for you based upon your activities

As has been said speculation on a forum is no substitute for reading the government guidance and getting proper advice. If you get it wrong the person culpable will be you, or the professional advisor if you sought one out and then misguided you.

 

[ScaredyCat]

You could be classed as a trader if you sell goods or services. If you’re trading, you’re self-employed.

You’re likely to be trading if you:

sell regularly to make a profit
make items to sell for profit
sell online, at car boot sales or through classified adverts on a regular basis
earn commission from selling goods for other people
are paid for a service you provide
You’re probably not trading if you sell some unwanted items occasionally or you don’t plan to make a profit. You can’t use any losses you make as part of a hobby to reduce your tax bill.

I didn't plan it, it just happened :lol:

 

[M_Chavez]

I would strongly argue that hobby work is not subject to tax, because you are not running a business or engaging in trade.
You do not set off to carry the work out with a view to make a profit.
That is, if you sell half a dozen items a year and do not actively advertise or present yourself as a business.
Example 1:
You build 1 chest of drawers every 6 months, keep them/use them for 6 months and sell it off on Gumtree as a "Solid wood hand built chest of drawers".
Example 2:
You build 1-2 chests of drawers a month, brand them as "The LilyB's Fine Woodwork Workshop", actively advertise and sell them through your custom-built website/ebay/gumtree/etsy as "Brand new hand built chest of drawers" with 2 year warranty and customisation available at extra cost per customers' request.

First example - in the spirit of the income tax - is not taxable, regardless of price you charge for your work. Second is - you present yourself as a business, carrying out repeated trade, you are advertising your work as brand new and offering other services, etc.

Of course, one thing to keep in mind is that the tax man might have no regard for their own rules or principles and they would happily jump at individuals to chase pennies (even if the costs of chasing them are higher than the benefit) while Google, Amazon, Starbucks and Lewis Hamiltons with their jets are dodging substantial tax liabilities.

And avoid accountants as long as you can. :twisted:

 

[MikeG.]

Sheesh...........it's not up to the woodworker to decide if his activity is taxable or not. It is up to HMRC, judging against a set of rules.

 

[M_Chavez]

A set of poorly worded principles and, arguably, often intentionally misinterpreted rules...
But hey, I'm not a tax adviser.

Now my advice for those who die
Declare the pennies on your eyes.

 

[nabs]

if you actually read the gov.uk links above you will see the guidance is admirably brief and worded in plain English. And of course you are not expected to understand all the underlying tax rules: per the same link above "Contact HMRC for advice if you’re not sure whether you’re trading."

 

[custard]

It's surprising this question doesn't crop up more often. It's extremely difficult to make a viable living as an independent furniture maker, but it's not that hard to make hobby woodworking pay for itself, and even a bit more besides. And yet there doesn't seem to be many, on this forum at least, who are aiming in that direction?

 

[profchris]

It's surprising this question doesn't crop up more often. It's extremely difficult to make a viable living as an independent furniture maker, but it's not that hard to make hobby woodworking pay for itself, and even a bit more besides. And yet there doesn't seem to be many, on this forum at least, who are aiming in that direction?

I can't speak for others, but I could maybe turn a small surplus selling ukes and guitars. The reason I don't is that I'd be valuing my time at below minimum wage (to charge more, I'd have to work differently and build to the market, not my interests). And fortunately I can afford to find my hobby.

So instead I give instruments away, to friends, as raffle prizes etc. That makes them literally priceless!

 

[JohnCee]

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 ...

This isn't correct. As a sole trader, if your turnover is less that 150k you can use cash basis accounting in which expenditure on equipment is an allowable expense. From HMRC website:
"Unlike traditional accounting, you claim other equipment you buy to keep and use in your business as a normal allowable business expense rather than as a capital allowance"

 

[profchris]

Thank for correcting that. As I said earlier, don't rely on anyone here but go to the source documents!

I'm sure this quote is correct, but there might be an exception for items above X% of turnover (or there might not). Always check.

And note it's turnover for the £150k. If you buy materials and the client pays you the cost, that's part of turnover. So how you structure your business has important tax effects.

 

[skeetstar]

I'm in that boat, I'm not a business but I love making things.

I have registered with HMRC as a sole trader, I raise invoices for things I sell or the woodwork I do, I record delivery mileages, timber costs costs of tools and consumables associated with the work, I submit my tax return and pay tax on the surplus of income over costs and allowances. The revenue will never come after me to check my affairs cos the numbers are too small, but if they did I have the receipts for everything, plus dates of miles driven, and copious records.

I do lots of small jobs for people, I couldn't make a living from it, but I do pay tax on what I make, and the numbers are so small that you'd have to call it tax on a hobby.