Hobby vs Business — HMRC Rules

The trading allowance

Since April 2017, there is a £1,000 trading allowance. If your total trading income (gross — before expenses) is £1,000 or less in a tax year, you do not need to tell HMRC or pay tax on it.

This is a straightforward threshold: if you sell a few things at one or two fairs a year and your total takings are under £1,000, you are in the clear.

But note: this is total income, not profit. If you take £1,200 at craft fairs but spent £800 on materials, your income is still £1,200 — above the allowance. You would need to register and file, even though your profit was only £400.

When does HMRC consider you to be trading?

HMRC uses a set of 'badges of trade' to determine whether activity amounts to trading. No single factor is decisive, but indicators include:

• Frequency — selling regularly (e.g. monthly fairs) looks more like trading than a one-off.
• Intention to make a profit — if you are trying to cover costs and make money, that points towards trading.
• The way you operate — having a business name, business cards, social media presence, or taking commissions suggests trading.
• Volume — making large quantities of items to sell suggests trading.
• Modifications — buying materials specifically to make products for sale (rather than selling off personal items) is a strong indicator.

If several of these apply to you, HMRC is likely to view your activity as trading, regardless of whether you think of yourself as having a business.

What do you need to do?

If your trading income exceeds £1,000 (or you want to claim expenses against your income), you should:

• 1. Register as self-employed with HMRC — you can do this online and it is free. You need to register by 5 October in the tax year after you started trading.
• 2. Keep records of your income and expenses — this does not need to be complicated. A spreadsheet is fine.
• 3. File a Self Assessment tax return each year by 31 January following the end of the tax year.
• 4. Pay any tax and National Insurance due.

You only pay tax on your profit (income minus allowable expenses). Allowable expenses include materials, stall fees, travel to fairs, packaging, and tools used for your craft.

VAT registration

VAT is a separate issue. You must register for VAT if your taxable turnover exceeds £90,000 in a 12-month rolling period (the threshold as of 2024/25 — check the current threshold on GOV.UK).

Most craft stallholders are nowhere near this threshold, but it is worth knowing about. Voluntary VAT registration below the threshold is possible but rarely advantageous for small craft businesses.

Practical tips

• Keep a simple record from day one — even when you are under £1,000. It is much easier than trying to reconstruct records later.
• Save your receipts for materials, stall fees, and travel.
• Open a separate bank account for your craft income (not required, but makes record-keeping much simpler).
• Do not panic — registering as self-employed is straightforward and being registered does not automatically mean a big tax bill.
• If your profits are low, you may owe little or no tax, but you still need to file if you are above the trading allowance.