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May 24, 2022
May 24, 2022
Side hustle

How to start a cake business

Desiree Weimann
Desiree Weimann
Looking to take your baking to the next level as a business? Here we explain how to set up, make dough and pay tax on your cakes and cookies.
Earnr is the finance and tax companion for the self-employed and side hustlers. We give you more time to run your business. Download Earnr for free on iOS or Android.

With the rise of Instagram as a platform to show off work, and the boom in hobbies and side hustles that came out of the furlough and lockdown period - the business of selling cakes has never been more popular. 

By the end of 2020, analytics consultancy Kantar Group calculated that there was a 34% increase in the purchase of baking ingredients, as more and more people spent time in the kitchen. For some this went further than a hobby as they honed in on a craft and business. 

But how do you go from hobbyist to business in the world of baking cakes? Here we look at how you start a cake business, make money from it and how you’re taxed.

How do I start a cake business?

We’re no puff pastry experts so won’t be offering baking tips, but we can help with the business side of things. There’s a few admin related hurdles you need to consider before you start selling people cakes:

Once you’ve checked these off you can start considering the business side of things:

How do you make money selling cakes?

There are plenty of different methods for making an income by selling cakes. We’ve already mentioned physical ways, but these can include:

The digital world arguably offers more far reaching channels. You could:

It’s also worth thinking about pricing. Make sure to do some market research on how much similar businesses are charging customers. If you’re new to the market then it might make sense to try and undercut competitors, but be conscious that there’s a decent amount of overheads when you set up, such as ingredients and kitchen utensils. 

If you come to scaling your business up then you’ll also need to think about how you keep it profitable, if you need to rent a space and employ people then you’ll need to know the demand is there. 

How much would I pay in tax?

As with any self-made income you’ll need to pay tax on your income if you make over £12,570 in the tax year. 

If you’re doing baking on the side then you’ll need to understand paying tax as a side hustle. You can read more about side hustles in our blog post here.

If you’re going full-time creator mode then you’ll need to understand paying tax as self-employed. You can read more about going fully freelance in our blog post here.

As you start out you’re more likely to be a sole trader in which case the bands for tax are:

Read about what tax bands are and how do they work here.

If you start hitting that higher rate of tax than it’s worth setting up as a limited company. This means you’ll pay corporation tax on your earnings at 19% rather than 40%+ income tax. If you’re on the basic rate it’s worth remaining as a sole trader and avoiding the additional admin and costs of setting up a limited business. 

Each year you need to fill out a self-assessment tax return. What you pay is your freelance tax bill minus the expenses of running your business. You can read more on how to complete your self-assessment tax return in this Earnr article

The usual cut off date to complete your self-assessment is the 31st of January if you’re doing it online, and 31st of October if you’re completing the form by post. 

How can Earnr help?

Earnr allows you to track your incomings and outgoings over the course of the year, and automate your tax return. You mark each payment you receive and each expense to your income so that by the time you get to doing your tax return, we’ll have everything we need to do the process for you. 

We also give you real time projections for your income as the year progresses so you know how much tax you’ll need to pay. You can say goodbye to manual bookkeeping!

Download the Earnr app now

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