Cake Makers and Home Bakers — A Complete Tax Guide

Baking cakes for a living — whether it's show-stopping wedding cakes, cupcakes for local cafés, or celebration cakes sold through Instagram — is one of those businesses that often starts at the kitchen table and grows from there. But once money starts changing hands, HMRC takes an interest. And quite rightly, so do you need to understand where you stand.

This guide walks you through everything self-employed cake makers and home bakers need to know about UK tax in 2025/26. We'll cover registration, allowable expenses, the tricky world of VAT on food, and how to keep your records straight.

Registering as Self-Employed

If you're selling baked goods for profit — even if it's just a few cakes a month — you need to register as self-employed with HMRC. This applies whether you're baking from home, renting a commercial kitchen, or selling at local markets.

You should register within three months of starting your business. Once registered, you'll file a Self Assessment tax return each year covering the period from 6 April to 5 April.

The Trading Allowance

There's a small exception worth knowing about. If your total trading income is under £1,000 in a tax year, you can use the trading allowance and won't need to report it. But if you're reading this guide, chances are you're beyond that point or heading there quickly.

Food Hygiene and Registration

While not strictly a tax matter, it's worth mentioning that you need to register your food business with your local council at least 28 days before you start trading. You'll also need to follow food hygiene regulations. The council may inspect your kitchen — whether it's at home or in rented premises.

How Much Tax Will You Pay?

Like any sole trader, you'll pay tax on your profit — that's your total income from cake sales minus your allowable business expenses.

Income Tax Rates for 2025/26

• Personal allowance: £12,570 tax-free
• Basic rate: 20% on profits between £12,571 and £50,270
• Higher rate: 40% on profits above £50,270

National Insurance

• Class 2 NI: £3.45 per week (£179.40 per year)
• Class 4 NI: 6% on profits between £12,570 and £50,270

If your baking business brings in £25,000 profit after expenses, your income tax would be around £2,486, plus Class 4 NI of around £745 and Class 2 NI of £179.40. That's roughly £3,410 in total — leaving you with around £21,590.

For a more detailed breakdown, our guide on how much tax sole traders pay is worth a read.

Allowable Expenses for Cake Makers

Claiming your expenses properly is the single most effective way to reduce your tax bill. Here's what most cake makers and bakers can claim:

Ingredients and Raw Materials

• Flour, sugar, butter, eggs, and other baking staples
• Specialist ingredients (fondant, food colouring, flavourings)
• Chocolate, fruit, nuts, and decorative items
• Packaging materials (boxes, ribbons, tissue paper, cake boards)

Keep all your supermarket and supplier receipts. If you buy ingredients that are partly for personal use, you'll need to work out the business proportion and only claim that.

Equipment and Tools

• Mixers and food processors
• Baking tins, moulds, and trays
• Piping bags, nozzles, and decorating tools
• Cake turntables and levellers
• Temperature probes and scales
• Display stands and serving equipment

Most of these items will be relatively low cost and can be claimed as a straightforward expense. Larger purchases, like a professional stand mixer or a commercial oven, may need to be treated as capital allowances if they cost more than £1,000.

Kitchen and Premises Costs

If you bake from home, you can claim a proportion of your household running costs:

• Gas and electricity (your oven is a big energy consumer)
• Water rates
• Council tax (business proportion)
• Mortgage interest or rent (business proportion)

HMRC's simplified expenses method lets you claim a flat rate based on the hours you work from home — £10 per month for 25-50 hours, £18 for 51-100 hours, and £26 for 101+ hours. However, for bakers using a lot of gas and electricity, calculating the actual proportion might give you a higher claim. Our work from home expenses guide explains both methods.

If you rent a commercial kitchen or shared kitchen space, the full rental cost is an allowable expense.

Delivery and Travel

• Fuel for delivering cakes to customers
• Vehicle insurance (business proportion)
• Mileage at HMRC's approved rates — 45p per mile for the first 10,000 business miles, then 25p
• Parking fees at markets and events

If you sell at farmers' markets or food fairs, your travel costs to and from those events are fully deductible. See our mileage guide for the details.

Marketing and Sales

• Website design and hosting
• Instagram and Facebook advertising
• Business cards and printed menus
• Photography for your portfolio (or photographer fees)
• Market stall fees and pitch costs
• Listing fees on platforms like Etsy or Not On The High Street

Professional Costs

• Food hygiene courses and certifications
• Sugarcraft and decorating classes
• Public liability insurance
• Professional body memberships

For the full list of what you can and can't claim, have a look at our complete guide to sole trader expenses.

VAT and Food — The Complicated Bit

VAT on food is famously complicated in the UK, and baked goods are right in the middle of the confusion. Here's the short version:

• Most food is zero-rated for VAT — meaning no VAT is charged.
• But cakes and biscuits with chocolate or confectionery coatings are standard-rated at 20%.
• Hot takeaway food is standard-rated too.

The classic example is the Jaffa Cake debate — is it a cake or a biscuit? (It's a cake, according to a famous 1991 tribunal ruling, and therefore zero-rated.)

For most home bakers selling celebration cakes, birthday cakes, and cupcakes, your products will likely be zero-rated. But if you're also selling chocolate brownies in retail packaging or hot pastries at a market, those might attract VAT.

The VAT Registration Threshold

You only need to register for VAT if your taxable turnover exceeds £90,000 in a rolling 12-month period. Most home bakers won't reach this, but if your business is growing fast, keep an eye on it. Our VAT registration guide has the full details.

One thing to note: if all your products are zero-rated, registering for VAT voluntarily could actually benefit you, because you'd be able to reclaim VAT on your supplies and equipment without having to charge VAT to your customers. It's worth running the numbers.

Record-Keeping for Bakers

Good records are essential, and with Making Tax Digital on the horizon, digital record-keeping is becoming the standard. Here's what to keep on top of:

• Income records: Every sale, whether it's a £20 cupcake order or a £500 wedding cake. Include the date, customer name, what you sold, and how you were paid.
• Expense receipts: Photograph or scan every receipt. Supermarket receipts for ingredients, Amazon orders for equipment, fuel receipts — all of it.
• Mileage log: If you deliver cakes or travel to markets, keep a record of every business journey.
• Bank statements: Ideally from a separate business account.

Using an app like Accounted makes this much simpler — snap your receipts as you go, and Penny will categorise them for you. No more digging through kitchen drawers for crumpled Tesco receipts in January.

Selling on Etsy, Instagram, and Other Platforms

If you sell through Etsy, social media, or a marketplace, the income is taxable in exactly the same way as any other sale. The platform doesn't deduct tax for you — it's your responsibility to declare it.

Keep in mind that platform fees (Etsy listing fees, payment processing charges, promoted listing costs) are all allowable expenses. So are PayPal and Stripe transaction fees.

From January 2024, digital platforms like Etsy are required to report seller data to HMRC, so there's no hiding income earned through these channels. Declare everything and claim your expenses — that's always the best approach.

Pricing Your Cakes to Cover Tax

One of the biggest mistakes home bakers make is pricing their products without accounting for tax. If you charge £100 for a cake and your profit margin is 50%, you're making £50 profit. But you'll owe income tax and National Insurance on that profit.

A rough rule of thumb: set aside around 25-30% of your profit for tax and NI. So on that £50 profit, expect to part with around £12-15 in tax. Factor this into your pricing from the start.

Payments on Account

Once your tax bill exceeds £1,000, HMRC will require payments on account — essentially advance payments towards next year's bill. In your first year of paying these, you'll settle your current year's bill plus 50% of next year's estimated bill. Budget for it, because it can come as a shock.

Growing Your Baking Business

As your cake business grows, you'll face some decisions:

• Should you move to a commercial kitchen? The rent is an expense, and it gives you more space and often better equipment. It also separates your business from your home life.
• Should you take on staff? Hiring an assistant means becoming an employer, with PAYE, workplace pensions, and employer's NI to manage.
• Should you become a limited company? Once your profits consistently exceed £30,000-40,000, it can be worth exploring incorporation for tax efficiency. Our guide on sole trader vs limited company can help you weigh up the options.

Wrapping Up

Running a cake-making or home baking business is creative, fulfilling, and — with the right approach to tax — perfectly manageable. Register early, keep meticulous records, claim every expense you're entitled to, and put money aside for your tax bill throughout the year. The recipe for a stress-free tax return is really that simple.

Accounted helps UK sole traders stay on top of their bookkeeping and tax. Start your free 30-day trial at getaccounted.co.uk

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Related reading:

• Sole Trader Expenses — The Complete List
• Work from Home Expenses Guide 2025/26
• How to Register as Self-Employed with HMRC

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