Tax and Side Hustles: When Does a Hobby Become a Business?

Chrissy Leach • 8 September 2025

What does that mean for tax?

Over the past few years, side hustles have become more popular than ever. Whether it’s selling art at local markets, reselling clothes on Vinted, or monetising a blog or YouTube channel, thousands of people across the UK are making extra income outside of their 9-to-5 jobs.

But when does a hobby tip over into a business in the eyes of HMRC, and what does that mean for tax? Let’s break it down.

The Key Test: The “Badges of Trade”

HMRC doesn’t have a single rule that says: “This is a business.” Instead, they look at something called the badges of trade - a set of indicators used to decide whether you’re just enjoying a hobby, or whether you’re carrying on a trade.

Some of the main badges of trade include:

Profit motive – Are you trying to make money, or just covering your costs?
Frequency of transactions – Are you making occasional sales, or selling regularly?
Organisation – Do you advertise, have branding, or run it like a business?
Modifications – Do you change or improve items before selling them (e.g. buying second-hand clothes, then reselling at a markup)?
Nature of the asset – Was what you sold originally bought to keep or to sell?

No single badge proves you’re in business, but taken together they paint a picture.

What HMRC Looks For

HMRC will look beyond the label you put on your activity. Calling it a “hobby” doesn’t mean it won’t be taxed if you’re making money in a structured way.

Some common scenarios:

Selling art or crafts – If you sell the occasional canvas or crochet piece for pocket money, it may be a hobby. But if you regularly list items on Etsy, take commissions, or market yourself on Instagram, HMRC is likely to see this as a business.
Reselling clothes online – Clearing out your wardrobe is fine. But if you buy clothes with the intention of reselling for profit (e.g. thrifting or bulk buying trainers), that looks like trading.
Monetising a blog or YouTube channel – Once you start receiving ad revenue, affiliate income, or sponsorships, HMRC will see this as taxable business income.
Landlords and property income – Even if you only rent out one property, it still counts as taxable income and must be declared.

The Tax Implications

If your hobby crosses into business territory, you’ll need to:

Register with HMRC as self-employed (even if you also have a job).
Complete a Self Assessment tax return each year.
Keep accurate records of income and expenses.
Pay tax and National Insurance on profits above the personal allowance.

The good news is that there are some reliefs:

Trading allowance – The first £1,000 of trading income (gross income, not profit) is tax-free.
Allowable expenses – You can deduct costs like materials, platform fees, and a proportion of home office costs.

Real-World Examples

Hobby: Lucy paints in her spare time and occasionally sells a painting for £50 to friends. She doesn't advertise her paintings. No tax return needed.

Business: Tom resells vintage clothes on Depop every weekend, buying items to re-sell at a profit, and keeping track of his profit margins. HMRC will expect him to register as self-employed.

Side Hustle Scaling Up: Sarah runs a blog. At first, it was just a creative outlet, but now she earns £200 a month from affiliate links. She needs to declare this income to HMRC.

Final Thoughts

If you’re earning money - even a small amount - from a hobby, it’s worth asking: Would HMRC see this as trading?

Failing to declare taxable income could lead to penalties, but getting it right from the start is straightforward with the right advice.

At CJL Accountancy, we help side hustlers, content creators, and small businesses understand their tax obligations, claim the right expenses, and stay compliant without stress.

📩 Need help figuring out if your hobby is a business? Get in touch with us today for friendly, expert advice.

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