When does a Hobby become a Business?

I am ofen asked is the activity I am carrying out a hobby or business?

A hobby or other activity can often evolve into a business but it can sometimes be difficult to ascertain the exact point in time when this happens. Case law gives us six tests to indicate when a business exists:

– The activity is a ‘serious undertaking earnestly pursued’ or a ‘serious occupation’.

– The activity is ‘an occupation or function actively pursued with reasonable or recognisable continuity’.

– The activity has ‘a certain measure of substance as measured by the value of supplies made’.

– The activity is ‘conducted in a regular manner and on sound and recognised business principles’.

– The activity is ‘predominantly concerned with the making of supplies to consumers’.

– The goods or services supplied ‘are of a kind which, subject to differences in detail, are commonly made by those who seek to profit by them’.

Where some or all of the above tests are met, you probably have a business. What do this actually mean?

To me, the tests can be summed up by saying that something which you do in an organised manner, on a regular basis, with the intention of realising a profit, is a business.