YourMoney.com Mailbag: Could I turn my hobby into a business?
Firstly it’s great to hear that something you enjoy and have a passion for could potentially be turned into a business to earn you some money.
According to the latest Office for National Statistics data, there were more than 350,000 new businesses set up in 2014 – the highest number since comparable records began in 2000.
If you want to be included in the next stats of this kind, then it’s best to produce a business plan and you’ll need to carefully consider the costs of running your business.
Don’t underestimate how much you’ll need setting it up says Marlene Outrim, managing director of financial planning firm UNIQ Family Wealth.
She says: “You may love what you’re doing and although you may be able to do it really well, running a business is a different kettle of fish. If you haven’t got the money then you’ll need to seek alternative funding”.
The amount you need depends on the type of business and how much stock you’ll need, your overheads, including staff and tax.
Another thing to consider is whether you’re comfortable promoting yourself and your products online and exactly what routes you’ll use and how.
“Marketing yourself on social media is not quite as easy as it seems and you may need to take expert advice. Other activities may be promoting yourself to other groups, networking and making presentations.” She adds that if this scares you, then getting into business may not be for you.
It’s essential to take on a bookkeeper or accountant so that you know what you can and can’t claim for. Some may offer you a free consultation before you commit and the annual fee will depend on the type of business you set up, but it should be in the region of £400-£500.
“Keeping records of all your income and expenditure and having a proper invoicing arrangements will be necessary, so that you don’t mix up the business with your personal circumstances,” Outrim adds.
If you’re successful and you make a profit in the first year, then you’ll have to allow for tax to be paid at some stage (so that means filling in a tax return), and also National Insurance contributions as you go along. You pay Class 2 National Insurance (£2.80 per week if your profits are £5,965+ per year) and Class 4 (9% on profits between £8,060 and £42,385) and 2% on profits above this) contributions. You still receive a personal allowance of £10,600 which will rise to £10,800 in the new tax year.
While you have certain skills to get the business going, you may find you need to learn a new skill set or pay for someone else to provide these for you so bear this in mind too.
A final message from Outrim is to remember that with a hobby, you can pick it up and leave it at any time, with a business, you can’t.