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Earning money doing something you love is the dream- when you enjoy what you do, it simply doesn’t feel like work. And this day in age, thanks to the internet and technology it’s easier than ever to monetize your skills and generate extra income with your hobbies. But what is it that differentiates a hobby from a side hustle/ business? While the lines can seem blurred, the simple answer is profit. If you’re aiming to generate a profit from your hobby then legally this needs to be declared, you need to ensure the right paperwork is in place as without it you can end up in trouble. While it sounds complicated and a little scary, it’s easier than you think. And actually, just about everyone can (and should!) have an additional way to generate income alongside their regular job. We all know how uncertain things have been in the past few years in the world due to the pandemic, and now with a cost of living crisis to contend with it’s clearer than ever that getting yourself into the best position financially is no bad thing. Here’s what you need to know.
Sole Trader or Limited Company?
Depending on what it is you do, and the way you work, you will need to register as a limited company or a sole trader. The most significant difference between a sole trader and a limited company is in ownership. While a sole trader is the single owner of their business and has unlimited personal liability over its operation, a limited company divides its ownership between more than one person. It’s easy to assume that registering as a sole trader means that you have to work alone, but this isn’t true. You can hire staff as a sole trader, however only you own and control your business. For employment law and tax purposes, however, the definition of self-employed is that you are fully responsible for the success or failure of your business and you pay tax through Self-Assessment rather than PAYE. If you’re unsure, there are free tests you can take online to help you work this out.
Register Your Business
Once you know whether you’re a sole trader or a limited company you can go onto your country’s government website and find the correct paperwork to register. This usually starts with some simple online forms, once this is done you will likely be contacted via post to send off some more information. It only needs to be done once, so while it’s a bit of a hassle once it’s done and dusted you won’t need to do it again. If you’re a professional business as defined by the SBA, you may need additional licenses or permits. If you’re unsure, seek help or do some research since it will all depend on exactly what your venture looks like and how it’s set up.
Pay The Right Taxes
By registering your business, you can be sure that you’re paying the right taxes. Depending on your situation it might be easy enough to do this yourself or you might need (or just feel more comfortable) having a tax accountant do it for you. If you work another job alongside your side hustle, own property, claim certain benefits, and a variety of other things, it can make the application more complex to fill in. You’ll need details of all of your other income and earnings, you’ll need to know how to get a tax ID number, and know all of the specific dates and figures. Paying taxes is done differently in different places in the world. For example in the US as a self-employed individual, generally, you are required to file an annual return and pay estimated tax quarterly. In the UK you will fill in an annual tax return in April with a payment deadline of 31st January the following year. It’s important to budget for your tax bill or set up a payment plan to spread the cost so you’re not caught short when your tax is due.
Turning a hobby into a side hustle is a smart move and might end up being one of the best financial decisions you’ll ever make. But be sure to go about things in the right way so you’re certain you’re following the law.
