Hobbyist income and tax man......
Discussion
Was talking a friend of mine at the gym the other night and his wife (who is currently out of work but could be considered full-time house-wife - 3 kids and all that) does a 'bit' of buying and selling on the internet for an amount of income per year.
This guy was asking me if I knew what the limit was before his wife had to 'officially' state she was doing 'business' in order the tax man would be happy?
I mentioned that the limit before NI tax was paid was something like £5500 per year (is it?)
And that I thought this would be the first threshold encountered before you would have to inform the tax man, and that this would be the limit as to when a 'hobby' became a 'business'.
Was I correct to say this or not?
The second part of my post is to do with his follow up question, which also grabbed my interest....
He asked if 'hobbyist' internet income was not declared, then how easy is it for the tax man to pick up on non-declared over the threashold incomes?
And would it be detectable if his wife were to have more than one current account in more than one bank?
(At this point I thought blimey....whats he up to...but then I guess this could actually be the case for many people who are doing hobbies/business on the interenet these days).
This guy was asking me if I knew what the limit was before his wife had to 'officially' state she was doing 'business' in order the tax man would be happy?
I mentioned that the limit before NI tax was paid was something like £5500 per year (is it?)
And that I thought this would be the first threshold encountered before you would have to inform the tax man, and that this would be the limit as to when a 'hobby' became a 'business'.
Was I correct to say this or not?
The second part of my post is to do with his follow up question, which also grabbed my interest....
He asked if 'hobbyist' internet income was not declared, then how easy is it for the tax man to pick up on non-declared over the threashold incomes?
And would it be detectable if his wife were to have more than one current account in more than one bank?
(At this point I thought blimey....whats he up to...but then I guess this could actually be the case for many people who are doing hobbies/business on the interenet these days).
My assumption would be that if she is trading in any capacity that it would need reporting to HMRC irrespective of the figures involved. If she is below the income tax thresholds then she wouldn't have to pay anything, but it would still need reporting.
I would also assume that if HMRC investigated her they could quite easily gain access to any account they wanted to if they suspected her of tax evasion......
I would also assume that if HMRC investigated her they could quite easily gain access to any account they wanted to if they suspected her of tax evasion......
HMRC requires that anybody who engages in a trade should notify them within three months of commencing that trade. The definition of "trade" is "conducting a transaction or series of transactions with a view to making a profit".
Note that the definition does not require that a profit be made. Even if the activity generates losses they should still be notified.
The trader is also required to register to pay Class 2 National Insurance Contributions. However, they do not need to pay Class 2 NI if their business profits (as calculated using normal business accounting methods and in accordance with HMRC rules - which now includes their new "Cash Accounting" rules) if the profit is less than what is called the Small Earnings Exception limit or SEE limit. For 2012/13 this was £5,595 per annum. For 2013/14 the SEE is £5,725.
There is no general exemption for notification if an activity is construed by the "trader" as a "hobby".
Note that the definition does not require that a profit be made. Even if the activity generates losses they should still be notified.
The trader is also required to register to pay Class 2 National Insurance Contributions. However, they do not need to pay Class 2 NI if their business profits (as calculated using normal business accounting methods and in accordance with HMRC rules - which now includes their new "Cash Accounting" rules) if the profit is less than what is called the Small Earnings Exception limit or SEE limit. For 2012/13 this was £5,595 per annum. For 2013/14 the SEE is £5,725.
There is no general exemption for notification if an activity is construed by the "trader" as a "hobby".
Eric Mc said:
The definition of "trade" is "conducting a transaction or series of transactions with a view to making a profit".
But what if there's no 'view to making a profit'?Say I buy a 1966 Fender Stratocaster but when I proudly show it
to somebody they say that I really should have bought a pre. CBS model,
so I sell my '66 (making a handsome profit) and buy a '64.
What an idiot I was, everybody knows that '63 is a 'better' year
and so I sell my '64 (making a handsome profit) and buy a '63,
but then I hear that Hank Marvin played a Fiesta red strat, so I sell
my '63 (making a handsome profit) and buy a red one, then I'm offered
a '54 Strat and so on .........
I keep seeing and 'collecting' other guitars I would rather have or hate the way some of my existing ones play, so keep chopping and changing (always at a profit).
I'm NOT doing it with a view to making a profit (it's a hobby) but I bet HMRC wouldn't see it that way.
The opposite might also be true, if I decided to supplement my main income
by starting a guitar trading business and was able to set expenses against
the trades and I ALWAYS made an annual loss, I bet that HMRC would try and claim
that it's just a hobby.
Just interested in a point made above.
Is it a legal requirement to inform HMRC of business activities if you're not breaching any tax thresholds?
Or is it just a voluntary basis which then becomes a legal requirement when you reach a threshold?
If its a legal thing below any taxable threshold then that would surely mean many/most of the people trading on ebay/gumtree were in breach of the law no?
Is it a legal requirement to inform HMRC of business activities if you're not breaching any tax thresholds?
Or is it just a voluntary basis which then becomes a legal requirement when you reach a threshold?
If its a legal thing below any taxable threshold then that would surely mean many/most of the people trading on ebay/gumtree were in breach of the law no?
AJI said:
Just interested in a point made above.
Is it a legal requirement to inform HMRC of business activities if you're not breaching any tax thresholds? YES
Or is it just a voluntary basis which then becomes a legal requirement when you reach a threshold? NO
If its a legal thing below any taxable threshold then that would surely mean many/most of the people trading on ebay/gumtree were in breach of the law no?
DO YOU KNOW THAT FOR SURE OR IS IT ONLY AN ASSUMPTION?
Is it a legal requirement to inform HMRC of business activities if you're not breaching any tax thresholds? YES
Or is it just a voluntary basis which then becomes a legal requirement when you reach a threshold? NO
If its a legal thing below any taxable threshold then that would surely mean many/most of the people trading on ebay/gumtree were in breach of the law no?
DO YOU KNOW THAT FOR SURE OR IS IT ONLY AN ASSUMPTION?
Eric Mc said:
assumption based on just about everyone I know who buys and sells on ebay having no idea regarding HMRC and the fact they don't consider themselves a 'business'.I actually wonder how many on here who use ebay/gumtree and the like actually register thier activities with HMRC?
HMRC's take on it is here:
http://www.hmrc.gov.uk/guidance/selling/income.htm
http://www.hmrc.gov.uk/guidance/selling/examples.h...
Some people are clearly traders; most are clearly not. But there is definitely grey in the middle where one might to persuade HMRC one way or the other. I'd say if you're concerned whether or not you're trading, then there is a fair chance you are.
http://www.hmrc.gov.uk/guidance/selling/income.htm
http://www.hmrc.gov.uk/guidance/selling/examples.h...
Some people are clearly traders; most are clearly not. But there is definitely grey in the middle where one might to persuade HMRC one way or the other. I'd say if you're concerned whether or not you're trading, then there is a fair chance you are.
HMRC have just finished a campaign asking for "Direct Sellers" Ie Ebay traders and similar to come forward to bring their tax affairs up to datte in return for a minimal penalty (10% of tax) to regularise their tax affairs.
I understand that they have lists of all people/businesses that have more than 1000 feedbacks and are comparing this list to their records - anyone who isn't declaring their income will in due course be contacted and potentially time consuming costly investigations started if HMRC believe them to be "trading".
Whether they then lok at those below that number remains to be seen, but with interrogation software it wouldn't take long to compile a list.
David
I understand that they have lists of all people/businesses that have more than 1000 feedbacks and are comparing this list to their records - anyone who isn't declaring their income will in due course be contacted and potentially time consuming costly investigations started if HMRC believe them to be "trading".
Whether they then lok at those below that number remains to be seen, but with interrogation software it wouldn't take long to compile a list.
David
sumo69 said:
HMRC have just finished a campaign asking for "Direct Sellers" Ie Ebay traders and similar to come forward to bring their tax affairs up to datte in return for a minimal penalty (10% of tax) to regularise their tax affairs.
I understand that they have lists of all people/businesses that have more than 1000 feedbacks and are comparing this list to their records - anyone who isn't declaring their income will in due course be contacted and potentially time consuming costly investigations started if HMRC believe them to be "trading".
Whether they then lok at those below that number remains to be seen, but with interrogation software it wouldn't take long to compile a list.
David
I have seen an eBay trader be approached under a criminal investigation by HMRC, they have all the trade details from EBay. In this case no vat or income tax declared, sales were in the millions.I understand that they have lists of all people/businesses that have more than 1000 feedbacks and are comparing this list to their records - anyone who isn't declaring their income will in due course be contacted and potentially time consuming costly investigations started if HMRC believe them to be "trading".
Whether they then lok at those below that number remains to be seen, but with interrogation software it wouldn't take long to compile a list.
David
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