If you’ve made a bit of extra money selling online or doing freelance work, you might wonder: “Is this just a hobby — or is it a business?” HMRC has specific guidance to help you decide, and the distinction matters for tax purposes.

Hobby Income vs. Business Activity

A hobby is something you do for fun, where making money isn’t the main goal. A business, on the other hand, aims to make 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 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 you’re running a business in HMRC’s eyes.

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

More Guides in This Series

• Do You Have to Pay Tax on Side Hustle Income?
• Do You Need to Register as Self-Employed?
• How to Track Income and Expenses for Your Side Hustle