0191 257 0355

71 Howard Street, North Shields
Tyne & Wear, NE30 1AF


Are you making money from a hobby?

Source: HM Revenue & Customs | | 08/05/2018

The 'badges of trade' tests whilst not conclusive are used by HMRC to help determine whether an activity is a proper economic / business activity or merely a money-making side line to a hobby. However, there is a point where careful consideration needs to be given to deciding whether your hobby has in fact become a taxable trading activity.

It is clear from the significant amount of case law on this subject that a decision on whether there is a business activity is often not black and white. In fact, both HMRC and the courts are clear that it is important to look at the whole picture rather than looking at each 'badge' in isolation or even relying too heavily on the badges of trade at all. In some cases, taxpayers will seek to argue that their hobby is actually a trade in order to benefit from certain tax reliefs, usually related to having a trading loss.

HMRC will consider the following nine badges of trade as part of their overall investigation as to whether a hobby is actually a trade.

  • Profit-seeking motive
  • The number of transactions
  • The nature of the asset
  • Existence of similar trading transactions or interests
  • Changes to the asset
  • The way the sale was carried out
  • The source of finance
  • Interval of time between purchase and sale
  • Method of acquisition

Planning notes:

The introduction of the trading allowance from April 2017 can help taxpayers making small amounts of money from their hobby. Even if HMRC considers that the activities in question are a trade, taxpayers can make up to £1,000 per year from their hobby using the trading allowance.

The sale of unwanted personal possessions is not considered trading (or a hobby) although there may be Capital Gains Tax implication if large profits are made.

If you are unsure of your situation - is it a hobby or a trade - we would be pleased to offer you an opinion.

 

Latest News

  • Child Benefit penalties under review

    06/11/2018 - More...

    The High Income Child Benefit Charge (HICBC) came into force in January 2013. It applies to taxpayers whose income exceeds £50,000 in a tax year and who are in receipt of child

  • VAT reverse charge construction industry

    06/11/2018 - More...

    A change to the VAT rules first announced at Budget 2018 will come into effect from 1 October 2019. This change will make the supply of construction services between construction

  • Business rates support for the High Street

    06/11/2018 - More...

    The Chancellor announced a number of measures to help many failing high streets up and down the country, as they face a real threat to their existence as footfall continues to be

Newsletter

With our newsletter, you automatically receive our latest news per e-mail and get access to the archive including advanced search options!

» Sign up for the newsletter
» Login

Copyright © 2018 - Read Milburn