Since the ‘Second Income’ campaign was launched last year, HM Revenue have been clamping down on people that aren’t declaring their additional income. Failure to disclose this information could result in hefty fines and even the closure of your personal business.
There are many activities that are classed as second income, such as organising parties, hairdressing, gardening, running stalls or selling crafts. Any exchange where you receive money for your products or services should be declared to HM Revenue!
If you have realised that your business should be paying tax but hasn’t been doing up to now, you need to give HMRC your income details as soon as possible. By voluntarily declaring your income, you will still have to pay the tax that is owed but fines will probably be reduced or could even be avoided completely and legal action is unlikely.
To let HM Revenue know about your second income, you can fill out this online notification form.
Planning for the future
For those who are thinking about turning their hobby into a business in the future, you will need to tell HM Revenue in advance. You can do this by registering as a sole trader which informs them that you are making extra money from your craft business. Each year, they will send you Self-Assessment Tax return form, which you simply fill out with your income details and return to HMRC. One of the downsides to doing it this way is that although it is cheaper for you in the short term, you will be personally liable for any problems or losses that affect your business.
Another option is to register as a company. You should be aware that this is the more complex method of the two and will require you to fill out much more paperwork. Many new starters choose this route as it offers structure when it comes to responsibilities and ownership. HMRC will offer you some protection when you register as a company, however, it is always better to insure your craft company properly if you want to rest assured that if anything does go wrong, you’re covered completely.
If you would like advice or have any questions about declaring your income, please feel free to get in touch with the Craft Cover team. You can call 0345 463 3003 or email email@example.com.