Is your art a Hobby or a Business?
|
MORE INFORMATION is available on the following pages:
|
This site does NOT provide:
|
You should engage/pay a professional for tax advice IF:
|
In the UK, there is a concept called the "Badges of Trade". This is
|
A distinction is made between
These legal tests are known as the “badges of trade” (see the image and the box below) Importantly hobby income is unlikely to be defined as either if it has a history of losses (i.e. it is not operating in a commercial way). This means that any losses incurred may not be treated as business expenses and may not be used to offset tax liability. |
As a rule of thumb if a hobby is profitable then it will be treated as being run on a commercial basis. REFERENCE:
|
As well as knowing what you can claim against tax, it's important to know what you need to declare.
Even if your art sales are a second income, by trying to sell only for cash and to not declare anything, it can backfire on you in the long run.
Comment on a previous incarnation of this site
The criteria for an individual to take part in this disclosure facility was as follows:
Examples of second income for somebody who is employed could be:
You have the opportunity to make a clean breast of it and get your tax affairs up to date in return for a reduced level of penalties for not coming clean earlier. Terms of the Second Incomes Campaign are that once notification of an intention to make a voluntary disclosure is made, the taxpayer has 4 months to calculate and repay what is owed in unpaid tax. |
The Second Incomes Campaign is an opportunity for individuals to bring their tax affairs up to date if they have additional income that is not taxed through their main job or another Pay As You Earn (PAYE) scheme. |
This page tells you how to register as a sole trader with HMRC and pay tax and national insurance contributions on your profits after allowable expenses.
You need to register when your business becomes active. You'll get a reference number, an online account and it becomes much easier to register for other taxes such as VAT You will then get a business tax account in addition to any personal tax account. |
If you start working for yourself, you’re classed as a sole trader - even if you haven’t yet told HM Revenue and Customs (HMRC). HMRC actively search for non-registered businesses and undeclared business income. If caught you will have to pay interest and penalties in addition to any outstanding tax. |
Video: Registering for Self Assessment
This video explains how to register your new business online with HM Revenue & Customs so that you can complete a Self-Assessment tax return. |
Video: Your first Self Assessment tax return
This video gives you guidance on
|
|
|
You must tell HMRC if you have:
- - gross trading income over £1,000 - register for Self Assessment
- - other gross income over £1,000 up to £2,500 - contact HMRC
- - other income over £2,500 - register for Self Assessment
- from Tax-free allowances on property and trading income | GOV.UK
HMRC has announced its intention to crack down on all those individuals who are generating trading income - but treating it as a hobby - and not declaring it for tax.
The 'quid pro quo' is that as from 6th April 2017 (i.e. 2017/18 tax year), a new allowance has been introduced for those people generating hobby income. The aim is to remove c.700k people from the need to complete a self-assessment return because they are making money from their hobby. It also provides a benchmark for when income effectively stops being a hobby. In future so long as your annual hobby income in a tax year does not exceed £1,000 you will no longer need to
|
Tax-free allowances on property and trading income | GOV.UK -
UK Non- Official REFERENCE ARTICLES about Hobby Income:
|
By law you are required to tell HMRC Revenue and Customs about any income that is not fully taxed, even if you are not sent a tax return.
HM Revenue and Customs
In the UK, a hobby artist can find out if they have to complete a tax return by completing a very simple questionnaire called Check if you need to fill in a Self Assessment tax return which is available on the main government website.
|
REFERENCE:
It takes a while to find all the pages which are relevant to artists - so here's a shortcut!
|
Expenses if you're self-employed
Guidance on Business Use of your Home: I recommend you check the date of the Information and whether or not it has been updated. Note the Capital Gains Tax consequences.
|
Simplified (flat-rate) expenses
For sole traders and partnerships which don't have limited companies as partners. Small self-employed businesses have the option to use cash basis accounting and simplified expenses. HMRC Help pages: |
|
|
Motoring expenses if you are employed
|
Part 4: Taxable profits
Tells you where and how to include your expenses HMRC Help Pages:
|
|
|
Completing the self-assessment return is not the end.
Now you have to pay your tax bill! The two videos below provide help about:
|
These HMRC advice notes provide additional guidance about budgeting and paying self-assessment tax bills. (see below)
|
VIDEO: Budgeting for your Self Assessment Tax Bill
HMRC help pages
|
VIDEO: Paying your Self Assessment tax bill
HMRC Help Pages
|
|
|
In December 2015 the Government announced its intention to change the way the tax system operates in the next five years to make it more efficient and effective for both the taxpayer and the government machine. Consultation is currently taking place on the proposed reforms.
The introduction of Digital Tax will
In future all self-employed artists with a turnover of more than £10,000 p.a. will be keeping their records on a quarterly basis and making payments on a quarterly basis. Employees and pensioners are excluded from the changes, unless they have secondary incomes of more than £10,000 per year |
REFERENCE:
I'll be researching and writing further on this matter. Subscribe to my News Blog if you want to keep in touch with what is happening - and get updates on other art business matters. |
There are three schemes geared towards offering tax incentives in connection with cultural property.
Details of these are provided on the Art Council website. |
|
ADVERT
|
Copyright: 2015-2021 Katherine Tyrrell | Making A Mark Publications
- all rights reserved If you've got any suggestions for what you'd like to see on this website please send me your suggestion
|
PLEASE NOTE:
1) Content and the law change all the time. It's impossible to keep up with.if you're not working on the topic full time. 2) I research topics carefully. However, I am totally unable to warrant that any/all information is
|
3) Hence all information I provide comes without any LIABILITY whatsoever to you for any choices you make.
4) This website is FREE FOR YOU but not for me. Links to books are Amazon Affiliate links. Buying a book via this website means I get a very small payment which helps to fund and maintain this website. .I much appreciate any support your provide. Adverts are provided by Google AdSense - but the adverts do not mean I endorse the advertiser. |