Last Updated on Apr 8, 2020 by James W
Transforming your hobby into a small business is a great way to make extra money in your spare time. Creating a business out of a hobby can give you a little more financial freedom and you can work as little, or as much as you want. It may give you a little extra cash towards living expenses, or help you to get out of debt. If you are selling crafts or goods online, then it is easy to set yourself up with an online shop and get yourself earning some money.
Registering as self-employed
If you are working for yourself you need to keep records of your income and expenditure and create accounts at the end of each year. If you are not already registered, you will need to register with HMRC as a self-employed person. You will then have to complete a tax return every year to declare if you have made a profit or a loss. If you have made a profit, you will be charged tax on this. When you have decided to turn your hobby into a business, make sure that you keep records from the first day you start trading. This will help you to have an accurate picture of what you are spending and how much you are earning. Using a spreadsheet is a good way to do this, and make sure you allow yourself time every week to update the information on it.
What records to keep
Keeping records is really important if you are self-employed. Firstly you should keep a record of your income. You should also keep hold of the relevant bank statements for the account that you are paying your income into. It is a good idea to set up a separate bank account for your business, so that the income isn’t confused with any other money that you may have coming in. If you owe money and are trying to pay it off with your earnings then effective debt management will help you to stay organised and keep track of your finances.
You will also need to keep track of your expenditure. This is anything that you have used in order to create your product, goods or services, such as materials. Again, make sure that you keep all the receipts for your expenditure as you may need them in the future. Keeping good track of your business expenditure can help you to make sure you are making a good profit.
Working from home
If you are working from home, you can claim a small portion of your home bills as business expenditure. You claim a flat rate of £10 a month, if you are working up to 50 hours a week. Alternatively you can calculate the actual running costs of your house and apply a percentage depending on how much space you use.
Turning your hobby into a small business is easy to do, and keeping the right records will make your bookkeeping simple when it comes to working out your accounts. Working for yourself can give you great freedom and you can set your own working hours.
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