Cake shed owners warned over HMRC self-assessment bills

People selling home-baked cakes from roadside cabinets could face tax bills, penalties and interest from HMRC if they have not registered for self-assessment, according to audit, tax and business advisory firm Blick Rothenberg, which pointed to the 5 October registration deadline.

Fiona Fernie, a partner at the firm, said sellers using an outdoor cabinet or “cake shed” need to be aware that HMRC has several ways of checking whether people with side-hustles are fully tax compliant.

She said: “Not registering for self-assessment when required to do so is a ‘half baked’ idea. HMRC can review council registration, and health & safety records.”

How HMRC checks sellers

Ms Fernie said income from cottage industry sales such as baking and selling cakes is classed as trading income and should be disclosed to HMRC each year on a self-assessment tax return.

She said some sellers do not disclose the income, “wrongly thinking they won’t get caught with their hand in the biscuit tin.”

“HMRC will compare the information they glean from councils with their self-assessment records to determine if sellers have paid the correct amount of tax on the income received,” she said.

According to Ms Fernie, people are required to register for self-assessment if their gross income from self-employed work is more than £1,000 per tax year. HMRC’s guidance on the trading allowance states that anyone whose gross trading income exceeds £1,000 must register and declare it on a tax return.

Business Matters has previously reported on research suggesting many content creators earning above the £1,000 threshold have not registered.

Penalties and deadlines

Ms Fernie said failing to register can result in penalties of between 20 per cent and 70 per cent of the tax due where HMRC judges the behaviour to have been “deliberate but not concealed”. She added: “the unpalatable ‘icing on the top’ is significant interest charges where tax is paid late.”

GOV.UK states that people who need to register for self-assessment for the 2025 to 2026 tax year, which ended on 5 April 2026, must tell HMRC by 5 October 2026.

Ms Fernie said those affected should contact HMRC as soon as possible. She added that there are unlikely to be serious adverse repercussions as long as sellers file their tax returns with the relevant income declared by the 31 January filing deadline.

HMRC has previously said that around one million people missed the self-assessment deadline in January this year, triggering automatic £100 penalties.

Ms Fernie said: “In cases where no return has been filed it will be extremely easy for HMRC to prove that a taxpayer has failed to notify their liability to income tax.”

She said that where taxpayers have been sent a return but left out some or all of their baking income, “it will not be a complicated exercise for HMRC to check for discrepancies and penalise where there have been errors in returns.”

Licences and costs

Ms Fernie said sellers with gross trading receipts of £1,000 or less in a tax year benefit from an exemption, while those above the threshold “would be wise to seek advice as to what needs to be disclosed to HMRC.”

She said this was particularly important because some councils in England are reviewing their street trading policies and insisting that cake sheds require a licence.

“The costs associated with a licence, relevant health and safety food hygiene accreditation, insurance and the cost of packaging which clearly indicates potential allergens in the ingredients, together with the more obvious costs of ingredients, bakeware and electricity all add up to a considerable amount,” she said.

According to Ms Fernie, a tax bill on top of those costs may make some of the enterprises unviable, meaning “keen bakers will have to revert to having their cake and eating it too.”

About the author

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Amy Ingham

Amy Ingham is a reporter at Business Matters, covering UK business news with a focus on breaking news, business policy, late payments and insolvency. She joined the magazine in 2026 after completing the NCTJ Diploma in Journalism at Harlow College’s journalism school. Her recent reporting includes British Steel’s nationalisation and its impact on SME suppliers, the decline in late payments by large firms, and Insolvency Service director disqualifications. Reach her at aingham@cbmeg.co.uk.