Business versus Hobby

Business Versus Hobby. What is the difference and where is the tipping point? I get asked this a lot. A hobby is something you enjoy doing and get pleasure from. It may be sometimes that make you some money from it. For example you may like making celebration cakes and your friends and family occasionally pay you to make them a lovely birthday cake as you are skilled and they really like what you do. What they pay you may not always cover the cost of the ingredients but you are happy as you enjoyed the task and got paid to do it.

Enjoying what you do

You might be ‘arty’ and like making craft related products or home-made candles or organic skincare from your kitchen table. You may sell these to friends and family for Christmas gifts or birthday presents to earn pin money. You are not necessarily doing these things you with the sole purpose of making money but sometimes it is nice to be paid for the pleasure of doing it. Your livelihoods and mortgage would not depend on this income but it brings you some extra money occasionally for the little luxuries in life (i.e. to pay for new handbags or nice shoes)!

Be prepared

However, if you are conducting your hobby with the sole intention of making money (and maybe you’ve borrowed some money from family or friends to get started) then you are in the process of starting a micro/small business and should register with HMRC and declare this as income.

A leap of faith

When you decide you are running a small business you need to advise HMRC and then you can start to claim the expenses and costs and show or offset any loses. You will need to start keeping accounts. If what you are doing is purely a hobby you cannot claim your expenses back on any income earned.

Growing from a hobby into a small business is sometimes a big leap of faith. You will usually recognise the tipping point yourself, when suddenly things start to take off and more and more people are interested in what you offer or what you are selling. There is a demand and the demand is growing.

A business is born!

Turning a hobby into a business is very possible and photography is a good example. You may have a natural talent and people see your photographs online on your Instagram account and suddenly you have a few requests for poster prints or new commissions. A small business is born! Research the growth potential and market place and make sure that this could become a small business that will earn a regular income rather than become an occasionally paid for hobby.