Ever wondered if what you are doing constitutes a business or a hobby? You are not alone.
A lot of small businesses start off as a hobby. Doing something your passionate about and enjoy as a side hobby can very easily turn into a successful profitable business.
Why is it important to differentiate you may ask? Well, that is because running a business has important legal and tax obligations.
Below is a summary of some of the characteristics to help you determine if the activity you are undertaking is deemed to be a business or a hobby.
REMEMBER: Even if it’s a hobby to start, you may need to keep these factors in mind if your activities change and grow. It is important to review your activities on a regular basis and consult an Accountant if anything changes.
Characteristics of a Business:
As mentioned above, businesses have several legal and tax obligations. If you believe you are, in fact, running a business, or are still unsure please get in touch with us for further clarification and advice.
Characteristics of a Hobby:
A hobby is defined as an ‘activity done regularly in one’s leisure time for pleasure’. The important distinctions here are:
If your activity is a hobby, you do not have any reporting obligations. Because no income is reported, you also cannot claim any expenses relating to the hobby and hence can’t claim any losses.
Sometimes, its beneficial to set your hobby up as a business, especially if you are looking at claiming losses. It is recommended to get an Accountants advice if you believe that this may apply to you.
If you are engaging in on-line selling, the same characteristics apply as above. See below a list of questions. The more you answer yes, the more likely your are carrying on an on-line business.
The Next Steps:
Please contact us immediately if you are unsure or if you believe you are carrying on a business based on the information above. We can help guide you with setting up your business properly as well as providing training on how to run your business.