This article was written by Keith Graham, Partner at Westbury Accountants and Business Advisors, AWAD’s Partner in this field.
You start off with an interest in art, perhaps going to your local evening classes and painting the odd still life or male model. A friend likes some of your work and buys it from you. Your local church runs a fundraiser and a couple of your works sell, so for the first time you cover the costs of your hobby. The local arts centre takes an interest in your work and asks if you would be prepared to put on an exhibition. The local paper picks this up and shows a few of your works in its pages. The pace picks up, as does the price, and suddenly your paintings are selling for a tidy profit.
Bear in mind that you don’t have to be an artist; much the same is true for those who collect art. Maybe after investing for personal pleasure for a while, you start to buy and sell and this becomes a more and more regular occurrence. If you are successful, accumulating profit may enable you to start buying more expensive works and so the profit you can realize per sale is likewise increased. It is also likely that you will start to devote more time end effort to acquiring knowledge useful in the field.
Plenty of different scenarios and many that are repeated day-in and day-out all over the country. The question is:-
When does your hobby become a business with all that entails in terms of keeping records and paying taxes?
The first thing to say is that this is not a precise science and it is important to consider all the facts. It’s all about when you start to ‘trade’, and unfortunately there is no statutory definition of ‘trading’. However, it is likely that you will know when your hobby becomes something more than just that and there will be a point from which you actively intend to make a profit, rather than simply enjoying what you do and seeing if you can get something out of it financially. What is absolutely clear is that the onus is on you, the taxpayer, to notify HM Revenue & Customs when you have started a trade. (more…)