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Do you have any hobbies that create an income stream, or did you set up a small business during COVID to bring in some extra money?
Are you aware of the filing obligations and when you need to report this income and pay tax? You may need to file a Self Assessment tax return to advise HM Revenue & Customs (HMRC) of your earnings and pay tax over.
When does a hobby become taxable?
The general rule to consider is whether you are operating with a view to making a profit. You might think this is always the case, however if you have a hobby which you decide you could start making some money from but are simply just covering costs then this would still be considered a hobby and doesn’t need to be declared to HMRC.
If you are operating with a view to making a profit, then you should register with HMRC and file a tax return. If you started the new venture before 5 April 2021 then you need to act now to ensure you are registered and your first tax return is filed before the 31 January 2022 filing deadline.
Trading allowance
HMRC introduced a trading allowance on 6 April 2017, which allows an individual to earn up to £1,000 each tax year from business income and casual earnings, such as gardening or babysitting tax free.
The trading allowance means you do not have to register as self employed and tell HMRC about your earnings if your trading income is less than £1,000.
If your trading income is more than £1,000 then you will need to register, but you are allowed to claim the £1,000 as a deduction against your income if you only have minimal expenses to offset.
If you are unsure about whether you need to register or would like assistance in registering and filing your tax return, we have a team of small business specialists based in our offices at Dalston, Dumfries, Penrith and Workington, who would be very happy to help.
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