Following changes to HMRC’s powers last year, various selling websites are being forced to handover customer account details to the taxman, and they have the powers to force sellers to pay tax on amounts they deem to be business profits.
So what counts as a hobby and what is deemed to be a business?
If you are a regular seller on sites like E-Bay and Gumtree, HMRC will label you a business if it can prove you are doing anything that is in the “nature of a trade”.
For example if you buy items and then re-sell in a short period of time, you could be classed as a business.
If you sell home-made crafts online, you could also be classed as a business.
HMRC will often look at a number of qualifying criteria that suggest a business trade is taking place (which are called the “Badges of trade”), and if they feel a seller ticks any one of the criteria, then they will deem you to be a business. These include (but are not limited to):
- Making a profit
- The number of transactions you make
- time between purchase of an item, and the sale of it
- Existence of similar trading transactions
- changes to the item
What if my hobby is deemed to be a business?
If your hobby is actually a business, then you will need to register for self-assessment, and declare your profits via your annual self-assessment return, and pay any Tax and National Insurance due on those profits.
In addition, if your turnover exceeds £82,000 in a 12 month period, then you would also need to register for VAT, and submit VAT returns, along with paying any VAT due.
If you think your hobby might be deemed to be a business, then get in touch for a free consultation.