When does a hobby become a business? Do I need to register as self-employed with HMRC?

When does a hobby become a business? You may start off making items for friends and family, then someone suggests that you take a stall at the local craft fair. From this, you get a few commissions, and then go onto Etsy or Not on the High Street.

From a tax point of view, there is no need to register with HMRC so long as your total annual sales are below £1,000. Nothing needs to be reported, and no tax needs to be paid.

Once you hit sales of £1,000, you need to register with HMRC. untied can help you with this or you can do it directly with HMRC.

You have until 5 October after the end of the tax year to register and you'll get something called a Unique Taxpayer Reference (UTR) from them.

This does not mean you'll necessarily have to pay tax on what you earn - if you earn under the personal allowance of £12,500. You may also have to pay national insurance which has its own (lower) thresholds.

Let's see how this works in practice.

Sally started knitting during lockdown and sold £1,500 online between August 2023 and March 2024. Sally spent £600 on wool and packaging. She knows that this covers the 2023/24 tax year between 6 April 2023 to 5 April 2024. Sally has until 5 October 2024 to register as self-employed and until 31 January 2025 to complete her first tax return. 

Sally has made a profit of £900 (£1,500 of sales less £600 of costs) - but still needs to register as her sales were above £1,000.

Although she has to tell HMRC, and they might instruct her to complete a tax return, there will be no tax due as she has earned under the personal allowance of £12,570,and also falls under the national insurance threshold.

As Sally grows, untied will be here to help. And if you have questions about your hobby to business journey, just drop untied a line!