Income Tax And VAT Implications Of Successful Hobbies
Are you making money from them?
POSTED BY ROGER EDDOWES ON 04/02/2021 @ 8:00AM
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?
If your hobbies are starting to generate income, then you may be liable for Income Tax and VAT!
As an example, a young skateboarder grew his reputation after his videos came to the attention of event organisers a number of years ago. He is now earning an income from his skateboarding hobby.
"As he wins more prize money and gains sponsorship income, does he now have an Income Tax and VAT liability?"
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.
"Is your hobby developing into a career?"
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.
Until next time ...
ROGER EDDOWES Business Godparent
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about developing your hobby into a career, call me on 01908 774320 and let's see how we can help. Don't forget to stay updated with our daily social media posts on our Facebook page.
Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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