What I Have Found
As a chartered accountant based in London, I share quick articles with readers of UK Professional addressing common questions or problems that they will experience. In this article, I will address the common question of when you are ‘in business’ and should start to comply with relevant laws and tax obligations.
Income Via Onlyfans and Zoom Sessions Have Rocketed
While plenty of online entrepreneurs and cyber marketplace users are well aware of their economic activities being well within the realms of money-making ventures, there are up-and-coming promoters who do not see themselves in that light.
Many people have taken to OnlyFans or online platforms like Zoom, even prior to the global pandemic, to offer remote services. In this article, I’m asking when your remote hobby becomes an online business, and what you should do about it.
What Constitutes a Business as Opposed to a Hobby?
HMRC, the UK’s tax payments and customs authority, views a business as being conducted ‘with a profit-seeking motive’ whereas a hobby might not be.
An artist may choose to create ad hoc cartoon images to be used by friends and family. Surely such artwork might well be deemed to be produced as a hobby, even if a nominal reimbursement or a token thank you is received in exchange.?
HMRC’s BIM20210 states: “The presence of a profit-seeking motive is not necessarily a decisive pointer to the existence of a trade. It is only one factor to be weighed along with all the other relevant factors.”
When an entity is trading products, there is a list of considerations, such as how the product is enhanced or repaired between acquisition and retail, to better decide if this is to be deemed a business activity.
In relation to all sorts of money-making activities, we are advised to consider the frequency and volume of the sale of goods or services. It is far more likely to be deemed to be a business if these are regular and repetitive.
For example, a fitness instructor aiding her community by selling live online fitness sessions, to 300 people a day, might be categorised as running a business.
When Should a Hobby Become a Business?
Accountants strive to get clients to be compliant with their record keeping, filing and tax payments. To put it simply, you don’t have to do any of these things in order to keep up a good hobby, but they are essential when running a business.
Once you become ready to take out business loans, staff or even to get your own personal mortgage, it can be really helpful to have an established business that is showing growth, healthy profits and compliance.
My advice is that when you are doing these activities to boost your income, consider that you might benefit from setting up as a business – whether a sole tradership or company – and allowing your business profits to count towards your future success.
I wrote this quick article about a common problem and (as always!) would advise you to discuss this with your (personable and experienced !) accountant.