Running A Craft Business

TAX:
Many crafters find themselves turning a hobby into a business purely because their crafting begins to attract people to buy.
In reality, the moment you sell an item you are infact trading and therefore need to inform the Inland Revenue.
In the eyes of the inland Revenue, there is no such thing as a hobby business.  In short, if you trade, take money or reward for an item then you are trading.
In the past you had upto three months to notify the inland Revenue.  Now they expect you to do it as soon as you start trading.  Failure to do this can result in fines, so you need to notify them ASAP!

You will probably be registering as self employed and you will be required to keep an accurate set of financial records.  These will include all receipts, outgoing transactions etc.  You can use your computer or hand written records to record all transactions including any income: grants, business loans, sales etc and also any outgoings: purchases for the business, electricity and heating etc, insurance, stationery, stall fees etc.
You need to be able to account for every penny coming in and going out.
At the end of the tax year the IR will send you the self employed papers or you can fill in a return online (much simpler!) Ignorance of this is no excuse!

INSURANCE:
This is not a legal requirement for crafts although it is seriously recommended.  Many of the better craft fairs will insist that you have adequate public liability insurance. (and some insist on product liability too.)   Society is now a suing culture.  If for example someone trips over your stall etc then the likelihood is they will sue and with out public liability your home etc is at risk.
You should also consider product liability insurance which protects you should your product be involved in injuring someone.  (you must make sure that all legalities of manufacture for your line of product are followed by you or your insurance will be void:  EG: toys must conform to BSEN71 1-3, toiletries have to comply to endless lists and must have been tested etc) Ignorance of this is no excuse!
You can get public liability and product liability insurance from a number of providers including Direct line, Ian Wallace and CIMITA.  You must read the small print to make sure that online sales, craft fair sales, sale or return sales etc are covered.
One thing that often gets overlooked is that your existing home and car insurance provider needs to know that you are manufacturiong, storing and selling from home.  That you car is being used to transport your goods (even taking a parcel in your car to the post office counts) failure to disclose this information may result in your insurance being void and could be very very costly.  I have found that the insurance providers are actually very understanding and have allowed me cover under standard policy.  Ignorance is no excuse.