Do you need to pay tax on your small hobby-based business?

From 6th April 2017, a tax-free trading allowance of £1,000 was introduced to cover ‘self-starters’ with small hobby-based businesses. The allowance can be used against trading or casual income on hobby activities, which are in the process of developing into a commercial business.

This may include selling via social media platforms for example, selling sweet boxes via Instagram or selling homemade jewellery via Facebook. If you have multiple sources of trading income, you can only claim one trading allowance however, you can choose to allocate the allowance between the income sources. It is important to log all transactions to ensure your income and therefore tax is accurate.

If your trading income is less than £1,000 per tax year, then you do not need to include the income on your self-assessment tax return. If this is your only source of income, you do not need to register for Self-Assessment with HMRC. However, there may be circumstances in which you do wish to register, for example you may want to:

  • pay voluntary Class 2 National Insurance contributions
  • keep a record of your self-employment for maternity allowance
  • claim tax-free childcare

If your trading income is more than £1,000 you can deduct the trading allowance from the trading income. The taxable profit will therefore be trading income less trading allowance. This is called partial relief. If partial relief is claimed, tax relief for any pre-trading expenditure cannot be claimed.

If you are unsure whether you are eligible to claim a trading allowance or whether you need to complete a Self-Assessment tax return, get in touch with us via our contact page or give us a call on 01704 891676 for more information.