When Does A Hobby Become A Business Venture? 

With an abundance of spare time (thanks to several lockdowns during the pandemic) the opportunity to catch up on old interests or to discover the joys of new hobbies has been apparent for many of us.

It’s no surprise there has been a significant shift in perspective of how people want to approach their working lives either, the perception that life’s too short has been drummed into us for the past couple of years and people are putting happiness/quality over job role.

Some intrepid individuals have found a winning combination by turning their beloved hobbies into their profitable livelihoods. 

But when exactly does a hobby become a business? 

Is My Hobby A Business? 

If you’re thinking of turning your hobby into a source of income, then you’re already partway there. Even if you’re starting from scratch you may be surprised to learn that you’ve been unknowingly aligning your entrepreneurial stars to this point. There are a few giveaway signs that you may already be enjoying more than just a hobby, and are actually in business: 

  • You have been selling products or services with the intention to make a profit. 
  • You have made a high number of similar transactions showing buying and selling. 
  • The items you have bought are of a type that can only give an advantage by selling them. 
  • You have repaired, changed, or improved items to make them easier to sell and/or gain a higher profit. 
  • You carried out the sale in a way that is typical of other trading businesses, ie. sales were not made in an emergency to raise cash. 
  • You took out a loan to buy the items and can only repay that loan by selling the items on. 
  • There is usually a short time period between buying and reselling an item. 
  • You haven’t acquired the items by inheritance or as a gift. 

These are known as the Badges of Trade. Not all the badges will apply to everyone, and some may point in different directions but they can be used to determine if you are trading as a business. 

If any of the above points sound familiar, then you may have a case to consider turning your hobby into a formal business enterprise. Turning something that you love doing into a money-making venture can be extremely rewarding – think about it, you’d be doing the work in your spare time as a hobby anyway, therefore, it’s technically passive income (if you can make it work). 

What Should I Do Now My Hobby Is A Business?

To begin, you need to understand a few options of operating that may be applicable to you. 

For a small-scale business with a low projected turnover, you may wish to set yourself up as a self-employed/sole trader.

If your earnings are projected to be higher (or work their way to becoming more substantial) a limited company may be a better option. 

To understand more about both of these options, read here, and to get started in setting up a limited company, read here. 

What Do I Need To Consider For HMRC?

Aside from making sure your business details are legally registered, keeping records of all transactions is an important aspect to ensure your tax return and reporting remains simple and concise. Be sure that you log all incomings, outgoings, business expenses and any other financial transactions that arise during the course of your operations. These will need to be declared to HMRC annually from a personal perspective and, if you’re operating as a limited company, from a business tax perspective also. 

Another important note to consider is that you should not risk trying to keep your profitable hobby as simply a hobby. Should you be caught out by HMRC (it’s easier than you think) then you will likely be facing fines, and you’ll be required to pay everything that you are discovered to have owed in tax from when you exceeded the trading allowance threshold. It’s really not worth taking the risk. 

What To Do Next

All of this may seem a little daunting or overwhelming but it need not be. We’re here to help, we’ve been helping people turn hobbies to businesses for years. So, what’s stopping you? You have the idea, the skill set and the support/expertise from us. Take the leap, become a professional hobbyist today and make money whilst doing something you enjoy! 

If you need any help, support, or advice into where your ambitions take you, we’re here to chat. Get in touch with us today and we’re sure we can help!