You might spend your time baking cakes for people or making craft items – like decorations – and selling them, but how do you know if what you are doing is just a hobby or if it is a business?
There are several indicators that HMRC have outlined for you to look at and help you to decide if you need to register as self-employed. These are guidelines only and you are responsible for deciding if it is just a hobby or not but be aware that if HMRC thinks you are actually running a business; they will contact you and you may be fined.
One of the main indicators is whether you are buying/making goods with the intention of selling them for a profit. An example would be if you are making a cake and you sell that cake for more than it cost you to make it, that is selling with the intention of making a profit.
Another key indicator is the frequency that you are making and selling the items. Did you make the cake as a one-off or are you making several cakes each week and selling them? If it is the latter, then you are doing this on a regular basis.
What about what you are charging? Have you provided a fixed cost for the cake and the person buying it has agreed to pay that price? If so, then you have actually entered into a contract with that person. This would indicate that you are trading as a business.
Are you responsible for fixing errors with the item in your own time? If you are, then HMRC will see this as another indicator that you are running a business. As you have a contract in place to provide someone with a cake for a set price, that looks a particular way or uses specific colours, if the cake looks nothing like what was expected, the person can ask that you correct the imperfections asap.
Another indicator that you are running a business is whether you are able to hire people at your own expense to help you out or do the work for you or not. If someone has asked you to bake and decorate a cake for them and it needs to be done for a certain date, but you then agree to make a cake for someone else for the same date, you may decide to pay someone to help you to meet both deadlines instead of letting either person down.
If you are still unsure whether you are running a business or it is just a hobby, you can call and speak to HMRC to get further guidance.
Watch out for our next blog post on how to register as self-employed!
(Image by rawpixel from Pixabay)
