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Thread: Hobby Vs Business dilemma

  1. #11
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    If you do tell HMRC then if you make a loss (expenditure v income) simply because you bought more than you've sold you can set that loss against any other tax. Maybe that is why the govt made that rule, they were missing out?
    Easy enough to get a business account from a bank then put all your income and expenditure through that and keep separate. easy then to do accounts at end of year. If you do online you have to do all the sums but the actual page if you have made a small profit or loss is only one or two pages as I recall from my days of doing that, and they don't ask for all the figures, just totals (but keep the paperwork just in case)
    Author: Pearls A Practical Guide
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  2. #12
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    if you don't want to set up a separate business bank account, but want to keep track of everything I can recommend the Wave accounting app. In it's most basic form it's free, and you can import both Paypal and Etsy transactions in quite straightforward to use. It also has the facility to scan and add receipts from 'real life' purchases via a photo app, which I find really useful. You can also link it directly to a bank account.

  3. #13
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    Quote Originally Posted by pearlescence View Post
    If you do tell HMRC then if you make a loss (expenditure v income) simply because you bought more than you've sold you can set that loss against any other tax. Maybe that is why the govt made that rule, they were missing out?
    No, I don't believe this is correct. I am not a tax expert but I remember reading on the HMRC website that you can only deduct expenses from income related to the carrying on of the trade, not any other income. It would be open to fraud if you could just deduct everything you buy as an expense against another source of income that is completely unrelated.

  4. #14
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    Quote Originally Posted by handmadeblanks View Post
    No, I don't believe this is correct. I am not a tax expert but I remember reading on the HMRC website that you can only deduct expenses from income related to the carrying on of the trade, not any other income. It would be open to fraud if you could just deduct everything you buy as an expense against another source of income that is completely unrelated.
    Since when?
    Prior to my going full-time I offset losses incurred in my jewellery business against taxes paid in my full-time job. With HMRC's full awareness. Whether the rules have changed in the last 2 years and I missed the memo, no idea.

    The key thing is that the individual is paying the tax owed. If you make a loss on a part-time business you owe less tax.

  5. #15
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    Two things which have not yet been mentioned in this discussion:

    An insurance company recommended by the Association for Contemporary Jewellery will be more experienced in this field
    http://www.acj.org.uk/

    If you decide to sell to the public you should avoid undercutting the rates charged by professionals, just to recoup you expenses. Dennis.

  6. #16
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    Quote Originally Posted by ps_bond View Post
    Since when?
    Prior to my going full-time I offset losses incurred in my jewellery business against taxes paid in my full-time job. With HMRC's full awareness. Whether the rules have changed in the last 2 years and I missed the memo, no idea.

    The key thing is that the individual is paying the tax owed. If you make a loss on a part-time business you owe less tax.
    Yes, you are right. If the business was/is a genuine commercial enterprise you can offset losses against other income.

  7. #17
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    Quote Originally Posted by ps_bond View Post
    Since when?
    Prior to my going full-time I offset losses incurred in my jewellery business against taxes paid in my full-time job. With HMRC's full awareness. Whether the rules have changed in the last 2 years and I missed the memo, no idea.

    The key thing is that the individual is paying the tax owed. If you make a loss on a part-time business you owe less tax.
    Yes, I accidentally clicked the offset button on my tax return last year not quite realising what it meant, and HMRC sent me a tax refund cheque. It wasn't very much, but I was scared to cash it in case I'd done something wrong! Checked with several people who run their own business and an accountant and it was absolutely above board, as my expenses in setting up and initial running of my business had been greater than my income from it.

  8. #18
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    Quote Originally Posted by handmadeblanks View Post
    Hi angmc,

    That is an excellent article but I think some of the information has been superseded by the new £1000 allowance introduced for 2017/2018 tax year. I haven’t found anything to suggest the allowance has been revoked. This means that a person can legally run a hobby business from home and as long as their income is below the £1000 threshold they do not need to declare anything to HMRC. But, you would still need Home Business Insurance, this is unambiguous to me.

    Getting back to my original question though: If a person assesses that they are NOT trading according to the HMRC ‘nine badges of trade’ test, does this also mean they do not need Home Business Insurance?

    Basically, do Insurance companies apply the same ‘nine badges of trade’ test as HMRC? If the answer is ‘no’, then does this create a contradiction i.e. you have Home Business Insurance even though you’ve told HMRC you aren’t trading.

    I suppose we have to find out for ourselves by contacting the insurance providers.
    Ah, I seen the £1,000 allowance is new - definitely when I registered a sole trader HMRC stated that ANY income gained from selling handmade goods had to be registered.

  9. #19
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    Quote Originally Posted by ShinyLauren View Post
    Ah, I seen the £1,000 allowance is new - definitely when I registered a sole trader HMRC stated that ANY income gained from selling handmade goods had to be registered.
    Same here, I registered the week I first sold a piece!

  10. #20
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    As far as I understand it (and I am not a professional but have talked to an accountant and an HMRC small business advisor) the allowance was bought in for hobby/early stage of business development because there was a disconnect between people offsetting tax and the income from their hobby that was costing HMRC more than it was worth to police for the majority and there were a minority who were playing the system so the allowance was created to close certain loop holes. However, in doing so it has created a situation where anyone selling craft work needs to be aware of the big picture so that they swiftly move into paying tax on their sales as soon as is necessary. The allowance and self assessment allow HMRC to keep tabs and send people appropriate information when they are nearing thresholds.

    Like Lauren and Lydia I registered early on but I did so as a limited company because everything I'd read with regards to supplying shops, ecommerce stores and selling through Amazon etc.. lead me to believe that they would only deal with a limited company for insurance purposes. My company has 2 years from when it starts actively trading (making sales and not just purchasing tools, consumables and setting up infrastructure) to become profitable otherwise it would be deemed a hobby and not a business. I am not sure whether or not the same rules apply as a sole trader but I would imagine so otherwise people could offset their losses against their hobbies indefinitely and completely negate their tax obligations.

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