Many people have a variety of hobbies such as playing sports, chess or even a musical instrument. Sometimes these can morph into a commercial venture of realising profits for tax purposes.
When considering if a hobby has become a business activity, unusually for VAT purposes, HMRC’s manual, VBNB27000, recommends evaluating the income tax implications and states:
‘When judging whether a hobby should be seen as a business activity you should consider whether the activity is taxable for income tax purposes. The Income Tax (Trading and Other Income) Act 2005, Part 2, Chapter 2, Section 5 states that: Income tax is charged on the profits of a trade, profession, or vocation. This is a similar provision to the VAT definition of business in VAT Act 1994 Section 94(1) which includes “any trade, profession or vocation”.
If it is treated as a business for income tax, there is a high probability it will follow suit for VAT purposes.
For those who are considering VAT registration or are currently registered following success when pursuing a hobby, here are a list of possible income streams and their respective liabilities:
Sponsorship
These will tend to be vatable at 20% when paid by a UK business and VAT Notice 701/41 also states ‘allowing the sponsor to use your name or logo’ is a standard rated supply. The sponsor will look to gain a commercial benefit through promotional material and marketing campaigns. Were monies to be received from an overseas business, this would be an outside the scope supply.
Appearance and Participation Fees
Payments for appearance and participation will represent a consideration for a supply and are standard rated where the place of supply is the UK. The entrant would be required to participate in a competition or event in return for payment.
Prizemoney
As this is not a given in a competitive scenario, prize money would be outside the scope of VAT.
Sales of Goods
Sportspersons and musicians for example may sell a variety of goods, ranging from equipment (standard rated), books (zero rated) and clothing (standard or zero rated). Exports of goods, irrespective of their UK VAT liability, would also be zero rated, subject to retaining proof of export.
This by no means this is an exhaustive list and VAT liabilities will differ as per the business activities and where the income is derived from. For those who are not VAT registered, it is only the taxable sales which will count towards the VAT threshold of £90,000. A taxable supply is a sale which is ordinarily standard, reduced or zero rated.
If you would like more information or advice please contact our VAT Team at Ellacotts on 01295 250401 or email solutions@ellacotts.co.uk. You can also contact us here with your query and we will get back to you.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.