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Old 09.03.2011, 15:39
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When does a hobby become a business?

So I DJ at a local club, used to be just a few nights a year, but they seem to be booking me on a more regular basis this year. Not much money involved, at the current rate I'll be lucky to get just over a thousand CHF for the year. It's cash in hand, but I sign some form at the end of the night, not entirely sure what for, but apparently keeps it all legal.

I'm wondering at what point in turnover I would have to start running it as a business just to avoid possible tax issues (I don't know even know if this is could be problem). Do I even need to? I'm just presuming that the tax man will get interested once a certain level of cash becomes involved.

I also imagine running it as a business would give me some perks too, can I claim VAT back for equipment and music or similar? One room in my flat is effectively a studio, could deductions be made for that?

Unless my circumstances change, I don't see it as a career move, just interested in the pros and cons and the legality. In terms of ammount of work I'm prepared to put in to it, well, it's a hobby, I don't want it taking over my life, I'm not going to do it just to save a few bucks.
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Old 09.03.2011, 16:26
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Re: When does a hobby become a business?

If you have receipts for everything that you have purchased, plus a record of your travel costs I doubt if you would be making a profit.

On that basis I would say that it is a hobby. If your income exceeds this, I would call it a business.

I am no expert, that is just an informed guess.
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Old 09.03.2011, 16:27
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Re: When does a hobby become a business?

Assuming you are also employed, you will need to pay AHV on this additional income at 5.15%. If you're not on PAYE (Quellensteuer), this income will need to be detailed on the Nebenerwerb part of your tax declaration. Best bet is to call your local AHV office. If you wait until your tax declaration is processed before paying the AHV, you'll be liable for interest which is around 5%.

What exactly are you signing at the end of each night? Whatever it is, I assume the club is using it for its book to log an expense, thus it could be cross referenced to your AHV & tax return.

If you're employed, I wouldn't recommend registering for VAT, but continue processing as additional income for which you can also deduct (reasonable) related expenses incurred directly by your business activity. For you to be able to claim VAT back on equipment etc, would mean registering under the standard Fixed Rate (Pauschalsteuersatz) scheme, which is admin heavy. You claim back all VAT paid to suppliers and charge all services with VAT, the difference being your liability. Depending on applicable rates for entertainment, the Saldosteuersatz method is admin light (2 returns a year) and basically gives you a fixed rate to pay for all turnover incurred in CH which is lower than the chargable rate. No VAT can be claimed back with Saldo, as the lower rate already considers average expenses for your type of business.

Remember, claiming VAT also means you will have to charge VAT, thus unless your clients are VAT registered and using the fixed rate method, your services may become more expensive as you may have to increase your prices to maintain the same net return as you will now be paying VAT on income.
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Old 09.03.2011, 16:37
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Re: When does a hobby become a business?

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If you have receipts for everything that you have purchased, plus a record of your travel costs I doubt if you would be making a profit.

On that basis I would say that it is a hobby. If your income exceeds this, I would call it a business.

I am no expert, that is just an informed guess.
Not really worked it out, assuming my equipment is paid off already from it being a hobby, I'm just about breaking even on expenses, which is what got me thinking in the first place. However, I'm looking at a new peice of equipment that would put it back into the red. So yeah, as a business, it's not a profitable one.

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Assuming you are also employed, you will need to pay AHV on this additional income at 5.15%. If you're not on PAYE (Quellensteuer), this income will need to be detailed on the Nebenerwerb part of your tax declaration. Best bet is to call your local AHV office. If you wait until your tax declaration is processed before paying the AHV, you'll be liable for interest which is around 5%.

What exactly are you signing at the end of each night? Whatever it is, I assume the club is using it for its book to log an expense, thus it could be cross referenced to your AHV & tax return.
Not too sure, but they aren't exactly checking my ID and making sure I give the correct details.

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Remember, claiming VAT also means you will have to charge VAT, thus unless your clients are VAT registered and using the fixed rate method, your services may become more expensive as you may have to increase your prices to maintain the same net return as you will now be paying VAT on income.
Thanks, that's definitely a downside, exactly the sort of pitfall I want to avoid.
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Old 09.03.2011, 16:42
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Re: When does a hobby become a business?

As a freelancer you only need to be VAT registered if your income is above 70 odd K CHF (or that's what it used to be a couple of years ago).

I don't know is this applies to people who already have a job though (i.e. multiple incomes).

However, if you are earning less than this amount then you don't need to be VAT registered.

Put it another way, my Mrs who freelances at less than 70k pa, doesn't have to VAT registered, even though our combined income is obviously more than this. Although again, you'd need to check with a tax laywer.

Although Basel-based, I'd recommend these ones: http://www.gmacg.com/
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Old 09.03.2011, 16:55
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Re: When does a hobby become a business?

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As a freelancer you only need to be VAT registered if your income is above 70 odd K CHF (or that's what it used to be a couple of years ago).

I don't know is this applies to people who already have a job though (i.e. multiple incomes).

However, if you are earning less than this amount then you don't need to be VAT registered.

Put it another way, my Mrs who freelances at less than 70k pa, doesn't have to VAT registered, even though our combined income is obviously more than this. Although again, you'd need to check with a tax laywer.

Although Basel-based, I'd recommend these ones: http://www.gmacg.com/
The VAT threshold for obligatory registration is now 100k. In some cases, it makes sense to apply for a VAT number even if turnover is well under that. An example might be a start up or new subsidiary where heavy capital investment is required.
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Old 09.03.2011, 17:18
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Re: When does a hobby become a business?

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The VAT threshold for obligatory registration is now 100k. In some cases, it makes sense to apply for a VAT number even if turnover is well under that. An example might be a start up or new subsidiary where heavy capital investment is required.
Why? (genuine question... )
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Old 09.03.2011, 17:50
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Re: When does a hobby become a business?

Building up stock levels with long lead times might be an example. Not sure about CH, but some countries do allow clawing back VAT prior to the registration date.
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Old 09.03.2011, 18:06
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Re: When does a hobby become a business?

Personally when I was a gigging musician I would look at something like this just as covering my expenses. The taxman doesn't take a big interest in such a small amount of money, and to make it into a 'business' is much more work and will not bring any benefit.

I would suggest that you consider it a hobby and take the money to cover travel costs.
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Old 09.03.2011, 18:18
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Re: When does a hobby become a business?

Still recommend you do it properly with the AHV office at least.

Before the last 'expel those horrible foreigners' vote, the Beobachter magazine tested the SVP proposals (which was incidentally voted in) for pretty much day-to-day misdemeanour scenarios to see what the result would be. Well, a fictitious unemployed Portuguese chap (who was born here and had never lived in Portugal) would have been booted out as he committed the heinous crime of helping his mate one sunny afternoon to fix his roof. He earnt a few hundred smackers for it cash in hand and 'forgot' to tell the AHV office.

Your situation is different I know, but AHV contributions (or lack of) are taken seriously.
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