Side Hustle vs. Hobby: What Counts as a Business?
In recent years, more people than ever are making extra money on the side — selling crafts online, flipping items, or offering freelance services. But at what point does your passion project stop being “just a hobby” and start being a business in the eyes of HMRC? Understanding the difference is important because it determines whether you need to register, keep detailed records, and pay tax on your earnings.
This guide explains the key differences, outlines HMRC’s “badges of trade” test, and gives practical examples so you can work out where you stand.
Hobby Income vs. Business Activity
A hobby is something you do for enjoyment, where making money isn’t the main purpose. A business, on the other hand, is run with the intention of generating a profit — even if it’s small or part-time.
HMRC uses something called the “badges of trade” to decide if your activity is likely to be classed as a business. These include:
- Profit motive: Are you intending to make money?
- Frequency: Are you selling regularly?
- Repetition: Are your actions systematic or organised?
- Modification: Are you improving items before sale?
- Marketing: Are you actively promoting or advertising?
- Record keeping: Are you tracking income and expenses?
You don’t need to tick every box — but the more that apply, the more likely HMRC will see your activity as a business.
Examples
Example 1: Hobby
- Lucy clears out her wardrobe and sells some old clothes on Vinted
- She doesn't buy items to resell or expect to make profit
- Result: This is a hobby — no tax due
Example 2: Business
- Josh buys vintage clothing at car boot sales and resells it on Depop
- He reinvests profits and runs an Instagram page
- Result: This is likely a trading business — and taxable
Trading Allowance Still Applies
Even if your activity is considered a business, you don’t need to report it unless your income exceeds the £1,000 trading allowance.
What If You’re Unsure?
If in doubt, it’s best to:
- Keep records of income and expenses
- Review HMRC’s “badges of trade” guidance
- Seek advice from an accountant or tax adviser