Thanks to lockdown, many of us are spending a lot more time on our hobbies. We're getting very good at them, maybe into a position that they could be monetised. But what happens when you start making money from your hobbies?
Our young skateboard receives appearance and participation fees as well as winnings from UK competitions. He also gets a regular income from his YouTube videos and has gained a number of sponsors. These British sporting brands are using his image, name and product testimonials within their own marketing.
The first thing we must decide is whether his hobby has become a business or not. If it has, and HMRC will most probably decide that anything more than a few thousand pounds a year income is, then both Income Tax and VAT will be due depending on how much he is earning.
So, sponsorship deals, appearance and participation fees, YouTube income and prize money would all be included in any assessment. It's worth noting that prize money would not be included for VAT purposes as it is considered a gift rather than earned income.
When it comes to VAT, anything that could be classed as a 'standard rated supply' would be included in any VAT assessment so once our skateboarder friend has reached the £85,000 threshold, VAT would be due on all his income for that tax year.
If you've been spending a lot of time developing your hobby, and are now receiving an income from all of your hard work and effort, it really is a great idea to seek professional advice from an accountant before HMRC notice your income.
That way, you'll be able to minimise any Income Tax and VAT that you owe.
If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.