If you’re reading this, you might already be earning a little something from a hobby.
For example, you might enjoy styling your family’s hair, making food, clothes, jewellery, tending an allotment or garden, or making cakes for friends birthdays and special occasions.
Beginning a business by accident
However, if you have started making money from your hobby, you might not realise that you have accidentally founded a business. As soon as you start earning money at local fairs, car boot sales, or online this counts as ‘a profit seeking motive’. You might argue that this money is only an ad hoc income stream and simply covers your costs. The HM Revenue and Customs might not see it like this. If you set up a business, however small, even if in the beginning you make an overall loss you should still register.
Registering a business whilst claiming any form of state benefit such as child tax credit or council tax relief can cause the HMRC and local council a great deal of confusion. As this is just a short article, I would advise seeking further guidance from either the Citizen’s Advice Bureau or other charity such as Turn2us.org.uk before officially registering. The benefit system can cope with you working part or full-time and as self-employed, if you keep them informed. However, you will have to maintain proper records such as a set of books or spreadsheets, recording on a monthly basis all you business income and expenses.
Putting this matter aside there can be great advantages in officially registering your business with the HMRC even if you are losing money. Talk to woman in business and many will tell you that for the first two years they actually lost money ‘on paper’. This is because in the early days most of their time and money is spent on the start-up process and promotion.
The good news
Well how does this benefit me you might well ask! Well quite simply if you are earning £15,000 in a year in a PAYE salary and in your first year of you new business you make a loss of (£4,000), when these details are filled in on your tax return/self-assessment form, you can offset your business loss, shown in brackets, against the tax banding of your salary. The HMRC after a few weeks of receiving your form will send you a cheque for £800. (£800 = 20% PAYE tax band of the £4,000 loss)
So if at the moment you are making small craft items in your spare room to sell then you can also count a proportion of your rent or mortgage, council tax and utility bills as a legitimate business expense!
There are more serious matters to consider when unofficially selling services or products – you could be breaking some form of regulation. These could be hygiene/health and safety laws, infringing someone else’s copyright or failing to comply with British Standards. A simple example of this is if you are making any kind of children’s toys, dolls, bears, games, craft kits, etc. then they have to be CE marked. The goods might have to comply with other regulations such as the ‘fibre content’ regulations which means that all textile products should contain a label describing what it has been made from.
Other crucial matters are taking on some form of public liability, product or treatment insurance, which now-a-days are quite inexpensive (under £50) with some professional and trade associations offering cover for free as part of membership or subscription.
These are some of the issues you have to investigate as you transform an amateur hobby into a professional enterprise. There are of course several other areas apart from legal matters to consider such as branding, packaging, and marketing. Understanding more about money management and how cashflow forecasts work. There are many practical skills that have to be learned such as self presentation, being able to sell and negotiation.
These sorts of skills can be easily learned by selling on a stall at a local market, food, or craft fair. This is a brilliant way to learn how to present yourself and your wares. This is where traders learn how to attract and barter with customers. It also can be an inexpensive way to test-market new ideas.
Should you do it…?
If you think, I don’t really want to turn my hobby into a business, as it appears to be a bit risky and complicated, then don’t, carry on enjoying what you do without the hassle of having to make it pay. Equally, you should also consider, especially if you have an unfulfilling occupation, that deciding to do it could increase your prosperity and personal well-being. It might well be the best decision you ever make.
Women who started a business from an interest or hobby include…
Melinda Foster http://www.fantasycupcakes.co.uk/
Mandy Haberman http://www.mandyhaberman.com/
Julie Deane http://www.cambridgesatchel.co.uk
Emma Bridgewater http://www.emmabridgewater.co.uk
Author and Business Adviser
“A Pocket Business Guide for Artists and Designers – 100 things you need to know” A & C Black
“The Essential Guide to Business for Artists and Designers – An enterprise manual for visual artists and creative professionals”, A & C Black
“Making Sense of Business – A no-nonsense business skills guide for managers and entrepreneurs” Kogan Page