1. Trade or hobby?

The first question you need to ask yourself is “Am I trading?”

HM Revenue & Customs (HMRC) have specific rules to determine what is “trading”. In a nutshell, if you are “carrying out a trade with a view to making a profit” then you are indeed trading.

You might think that purely by registering on Folksy (or any other trading website) that you are trading, but it is not quite as simple as that.

If you merely using Folksy to sell on items you have made at cost (i.e. you enjoy making items as a hobby and sell surplus items at the cost price of the materials, or at a loss) HMRC are unlikely to view this as a trade. If, on the other hand, you are making items for the express purpose of selling them for a profit then this is likely to be considered trading. Your local tax office will be able to provide more guidance on this.

2. Legal responsibilities

When you first become self employed you must register with HMRC for both income tax and National Insurance purposes. You need notify HMRC as soon as possible, and no later than 5 October following the end of the tax year in which you started your business.

For National Insurance purposes you must notify HMRC within 3 months and for VAT it is when you breach the annual turnover limit (or if you expect to breach it within the next 30 days).

For information on how to register as self employed please visit:
http://www.hmrc.gov.uk/sa/register.htm

You can also phone 0845 915 4515 for advice on how to register with HMRC when you start a business, basic information on Self-Assessment, National Insurance, VAT and record keeping.

Alternatively, contact your local tax advisor – details of individuals and firms registered with the Chartered Institute of Taxation can be found at www.tax.org.uk

Another useful resource is the Gov.uk website https://www.gov.uk/browse/business which includes advice on managing and financing your business as well as tax.

Further reading:

VAT MOSS: http://folksy.uservoice.com/knowledgebase/articles/484127