For the vast majority of creators, we don’t start making a full-time income all at once.
It’s a slow process. Unfortunately.
Usually it that looks something like this: No payment, becomes gifted items, which become small payments, which become more regular payments and, if we’re lucky, that could eventually turn into a full-time wage.
Unless you’re a Mrs Hinch and are shot to instant online fame, most of us start off by only making a small amount of money as a creator. And we get pretty excited about it, too!
However, beginning to make cash from your blog or social media platforms also raises one huge question: Do I have to pay tax on this £25 sponsored Instagram story?
If you’re a full or part-time content creator, making a full or part-time wage from what you do the answer is pretty simple: Yes. You do have to pay taxes on your earnings and register as self-employed through HMRC here in the UK.
However, if you make a small amount of money from your blog or business, I’ve got good news for you in the form of ‘Hobby Allowance’.
What is the ‘Hobby Allowance’?
‘Hobby Allowance’, also known as ‘Trading Allowance’, means that anyone earning less than £1,000 gross income per year from their small business, doesn’t have to declare their income.
What the ‘hobby allowance’ means for you as a blogger or online content creator?
As of the 2017-18 tax year, those individuals making less than £1000 don’t have to fill in a tax return, register as self-employed or pay tax on what they earn.
This shift was made in order to make it easier for people who make a small income from ‘hobbies’. Regardless of where your income is coming from online – affiliate programmes, sponsored posts, adverts – you are entitled to the hobby allowance.
The Chancellor said this: ‘It is becoming easier for more and more people to become ‘micro-entrepreneurs’. However, for those making only small amounts of income from trading or property, the current tax rules can seem daunting or complex.’
What the ‘hobby allowance’ means for your small online business?
Similarly, if you make less than £1,000 from your online business, you do not need to register as self-employed, fill in a tax return or pay tax on your earnings.
So, this includes things like selling clothes on Depop, starting an Etsy shop or creating paid-for downloads on your website.
As long as you are making less than £1,000 gross income, this is all considered a ‘hobby’ and, therefore, not something you should be taxed on.
What’s the catch?
Overall, the allowance is pretty simple. However, one catch is that you must be operating on your own. That means, if you have a partner in your business who you share your profits with (yes, even if it’s your Mum!), you do need to declare your earnings to HMRC.
What do you have to do in order to be granted the ‘hobby allowance’?
As long as you’re eligible, nothing!
You do not need to contact HMRC or declare your earnings in any way as long as your gross annual income is less than £1,000.
What if you are already registered as self-employed?
If you registered yourself as self-employed, but are now not making more than £1,000 a year from your business or hobby, you need to let HMRC know.
When it comes to next filing your tax return, answer ‘no’ when asked whether you earned more than £1,000 during that tax year. Then, you won’t have to fill out the self-employment section of the tax return.
You can also de-register as self-employed, as long as you don’t anticipate making more than £1,000 in the next tax year, too.
Should you keep track of your income and outgoings, even if you make less than £1,000?
We would highly recommend keeping track of your expenses and income for your blog, online business or hobby. Even if you’re currently making less than £1,000, you never know when you might get over that threshold.
Fingers crossed you do, right?
Having clear records of your spending and earnings will make the process much easier when it comes to filing a tax return. Trust us.
You can find our template for keeping track of your income and expenses here.
More information from the real experts
Hopefully this post has eased some of your tax-based concerns. However, if you want more information be sure to check out the HMRC website for information on self-employment.