If you’re an individual in the UK that receives donations on Twitch, advertising revenue on YouTube or gets paid for working in esports, you may need to pay tax on this income.
Read on to find out what tax you owe, how to pay it and run through the different options available, including accountants, filing for self-assessment and more.
Do I need to pay tax?
If you earn less than £12,500 in a single tax year, you do not have to pay tax on this. Bear in mind, earnings will include anything from wages to freelance work, Twitch donations, savings and more – not just your main source of income.
If you earn more than £12,500, you are legally responsible to pay tax on earnings made above £12,500.
There is a misconception that this £12,500 applies for separate jobs. That’s not the case. If you earn £12,000 from one job in a year, and £12,000 from another, you have earnt £24,000 overall and thus will need to pay tax (20% – see ‘How much tax do I need to pay?’ below for specific tax rates).
Bear in mind, this £12,500 personal allowance can vary from year to year, so it’s worth checking the HMRC website for the currently correct figure here. There are other factors that can affect the tax-free personal allowance, possibly making it more or less than £12,500. For example due to marriage allowance, adjustments for other income, reclamation of underpayments in previous years, or if you have another job, your employer could be operating a tax code number to ensure you pay the correct amount of tax.
Make sure HMRC has the right info to calculate if you do need to pay tax. If you work a full-time job for an employer, they will likely have done this for you. If you earn money yourself on the side or full-time as a sole trader, you will need to submit a Self Assessment tax return.
If you’re not sure, you can use this online tool to check if you need to send a Self Assessment tax return.
How do I pay tax?
If you’re registering as self-employed for this line of work for the first time, under description of business, we suggest putting ‘esports professional’ here, or ‘online streaming professional’.
Make sure you keep a list of incomings and outgoings associated with your work throughout the year. You can do this via a spreadsheet for example. Then when it comes to paying tax, you’ll already have the figures needed to submit your tax return.
Keep any invoices and receipts too – you should retain these for five years. It’s a good idea to keep everything in a folder or drawer, somewhere you can easily get to and refer to payments should you need to in the future. There’s more info on what you should track in this HMRC video here.
Don’t forget, you can claim certain things back on your tax return (see ‘Can I claim expenses’ below). For example, if you work from home you may be able to receive tax deductions on things like electricity bills and so on. If you want to, you can always seek advice or another opinion by contacting a financial expert or accountant.
Do I need to pay tax on Twitch donations, Patreon donations, Paypal donations or Google revenues from YouTube videos I create?
If whatever you made from Twitch, YouTube, Paypal, Patreon or other platforms is more than £12,500 in a single year, then yes, you must pay tax on it. Whatever income is received from these platforms in a single tax year, must be added to other taxable incomes received in that year.
If £12,500 is exceeded, anything made on top of that is taxable.
The term ‘donation’ on platforms like Twitch and Patreon is a little misleading, as it’s not technically a donation that might more commonly be made to a charity. Charities don’t pay tax on most types of income as long as they use the money for charitable purposes.
A Twitch, Patreon or Paypal donation you receive is no different to pay you may receive from a job, for example. It is taxable.
Services like Patreon and Paypal may have tools that help deduct tax for you. Please note, services like Paypal may take a cut on any income you receive. They will pay tax on the amount they take from you (that’s their taxable income), but you will still need to pay tax on any income you receive using a service like Paypal.
Do I need to pay tax on the cut Twitch takes from my donations?
No, that’s for Twitch to pay tax on.
When it comes to fees, if for example from a $5 subscription is made to your channel, Twitch typically takes 50%, so $2.50, and the other $2.50 would be your taxable income.
However if you received a lower amount (for example $2.20), things can get a little more complex. It’s not clear if that 30 cents is a fee or tax at source. It’s also not clear if the payment is made from the US or from another jurisdiction in which Amazon operate. We’ve been asked if in this instance you could reclaim that 30 cents or not. The general rule is in most circumstances you do not get taxed twice on the same income.
We reached out to Twitch as to what happens here and unfortunately it couldn’t confirm.
A Twitch spokesperson said: “We are unable to provide tax advice. When a partner writes in to us, we forward them to our Taxcentral website where they can get possible assistance as well as pick up their tax forms which they can consult a tax professional with if they wish to do so.”
For more info, see the ‘What is foreign tax credit relief’ section in this article and read the Double Taxation Relief Manual here.
What if I receive money in dollars or other foreign currency that isn’t pounds?
You should use the exchanges rates on the HMRC website if you have to convert any foreign currency to sterling for customs and VAT purposes.
What if I’m running a stream that’s raising money for charity?
The rules are different here. If you are raising money for charity, you do not need to pay tax on any revenues received for that charity. Just pass the money on to your charity of choice after the stream is over and the charitable donations have been received.
If you say you’re raising money for a charity but do not pass the money on to said charity, this is against the law as you are committing fraud.
If you run a charity, you can of course raise funds as a charity. If you are raising funds for your own charity, you must make sure that it is a registered charity recognised by the Charity Commission first, in order to claim tax relief on any donations received.
How much tax do I need to pay?
If you earn between £12,501 and £50,000 in a year, 20% of whatever you earn above that needs to be paid in tax. The first £12,500 is tax-free.
If you earn between £50,001 and £150,000, the tax rate is 40%.
For anything earnt above £150,000, the tax rate is 45%.
Again, if you earn less than £12,500 overall in a single year, you do not need to pay tax on that.
However, if you earn more than £100,000, your £12,500 personal allowance goes down by £1 for every £2 of income you generate above £100,000. The personal allowance can reach zero if you hit a certain point.
Remember, the tax-free allowance and tax rate can vary year on year. This article covers 2019-2020.
Also, don’t confuse National Insurance with income tax (see ‘Other things to consider, including National Insurance contributions’ near the bottom of this article for more info on that).
What if I’m a minor?
If you are aged under 18 and earn more than £12,500 in a single year, you will need to pay tax on this, as outlined above. If you’re not sure how to pay tax yourself, you can get someone else to submit a tax return on your behalf, acting as an agent or accountant for you.
Ultimately, you’re still responsible for keeping records of your total income and expenditure, as that’s the information you’ll need to submit a tax return, or provide to someone else to do so on your behalf.
What if I run an esports organisation or team, or other business?
Tax rules are different for businesses. This article is mainly to help individuals, such as streamers, esports talent that works on a freelance basis or players that earn tournament winnings.
If you run an organisation that earns money, you’ll need to make sure you register as a business.
It’s also worth considering whether to set up a limited company and have your income flow through this, or remain as a sole trader. Having a limited company can be tax efficient and have other benefits. We will aim to produce a separate guide for businesses in the future.
If I’m an esports player, do I need to pay tax on any tournament winnings?
Yes. There is a misconception that prize money earned falls under the gambling category of tax, and that only contractual/salary-based income is what needs to be declared. That’s not the case. Even though some esports games may have elements of chance within them, esports is recognised as a game of skill, not a game of chance like gambling is.
Esports tournament winnings count as taxable income, even if you are already contracted to a team and have a salary. Now, it may be that the esports organisation you’re playing for deducts an amount from the winnings to be paid to HMRC, before paying you a smaller amount, or that you take the winnings and will need to pay tax on the winnings yourself. Either way, tournament winnings are taxable.
Make sure you have an agreement in place with your organisation before taking any winnings, so that both yourself and your organisation understand who will be paying tax on the winnings. You should get proof that the team has deducted tax from winnings or not before paying you. Check your contract thoroughly before joining a team or taking on work. There’s more info on contracts here.
Opens and tournaments that pay out smaller amounts also apply. If you win a £5,000 Insomnia tournament, for example, that money is taxable.
What if I have a full-time job and earn money from esports or streaming on the side?
You may need to pay tax on whatever extra you earn. The first £1,000 of income from self-employment counts as your ‘trading allowance’ and you won’t need to pay tax on that. But for anything more than that, you will.
Trading allowance basically covers some expenses. For example, if you earnt £20,000 and had expenses of £3,000, then the trading allowance would not be worth claiming. Instead, a claim relating to actual expenses incurred would be more beneficial.
What if I work freelance for different companies or events throughout the year?
Freelance work can be contract-based or invoice-based. Keep a track of your incomings and outgoings and make sure you read over any agreements with your employer or hirer beforehand, to see how tax is paid.
If you are registering as a self-employed streamer or individual for the first time, you can put ‘esports professional’ or ‘online streaming professional’ under ‘description of business’.
When do I need to pay tax?
You will need to pay any tax for revenue made the year prior by January 31st.
Bear in mind, the tax year is not the same as the calendar year. The tax year runs from April 6th to April 5th.
For example, tax for income you generated between April 6th 2019 and April 5th 2020 will need to be paid by midnight January 31st 2021. This is the online deadline. For paper submissions, the deadline is midnight October 31st.
What if I don’t pay my tax on time?
You may receive fines. You’ll get a fixed penalty of £100 as soon as the tax return becomes overdue, for example if you submit the return on February 1st.
You’ll have to pay more if it’s later, or if you pay your tax bill late. You’ll also be charged interest on late payments.
There are additional penalties for late filing of the return, and they accrue at the three-month, six-month and 12-month marks (that’s on top of the £100 penalty). So the sooner you get your tax return in, the sooner the penalties stop.
If you haven’t paid tax on income that you should have done, you can come forward to HMRC and will be less likely to receive penalties, or receive a lower penalty. If you still owe tax that you haven’t paid, you can make a voluntary disclosure here.
Should I use an accountant, agent or advisor, or submit tax returns myself?
Accountants can be an option to consider to help streamline the tax-paying process.
They will usually submit your tax return on your behalf and handle most of the admin, then take a commission or fee from you for doing so.
Remember, you must keep records of all your income and expenditure yourself. You can then pass these on to your agent or accountant for them to complete your tax return accurately.
Always check what you owe; it’s also a good idea to shop around first. Ask friends and family for recommendations, do your homework beforehand so you can get the best deal and find the right accountant or agent for you.
Bear in mind, anyone can present themselves as an advisor, so it’s a good idea to do your homework on them first.
Also, a lot of advisors out there may not know about the esports industry and may not ask you the right questions. So you should make sure your accountant understands how esports work and how your income is made, whether it’s wages, winnings, Twitch donations and so on.
Where does my tax money go?
It goes to Her Majesty’s Revenue and Customs (HMRC), a non-ministerial department of the UK Government responsible for the collection of taxes.
This money is used by the Government to fund the National Health Service (NHS), the police, firefighters, armed forces, education (like building schools and paying teachers’ salaries), as well as paying older people state pensions and those who are eligible for benefits.
Can I claim back expenses?
Yes. For example, If you’re an individual and you buy a new PC for streaming with, or a new high speed internet connection, you can make a ‘personal use’ adjustment in your tax return, in theory, if you’re self employed.
When you have an item like this, that you may use for both work and leisure, things can get a little more complicated.
Allowable expenses can reduce your taxable income.
Please see this guide on the HMRC website for more info or seek expert help for more info.
What if I receive money – or freebies – from sponsors?
Sponsorship is taxable income. For example, if an esports brand hires you to be an ambassador or sponsors you, the money you receive from them is taxable.
Gifts you receive (for example a gaming chair or keyboard from a sponsor) may or may not be taxable, depending on the nature of the gift. If you sell gifts on, for example on eBay, you do not have to pay tax on this. However, if you are reselling as a business or in large amounts, or you receive a gift with a particularly large value (like a car), you may need to pay tax on this. Read the Business Income Manual for more info.
When it comes to receiving gifts from brands, make sure you adhere to the rules of the Bribery Act.
There’s more info on receiving gifts here:
What is foreign tax credit relief?
If you live outside the UK but have paid tax on income received or capital gains made that are taxable in the UK, you may be able to claim for the foreign tax paid as a credit and this is referred to as foreign tax credit relief (FTCR).
The amount of FTCR allowable can vary and it should be the lesser of:
- The final tax liability in the foreign jurisdiction or
- The equivalent UK tax on the income.
If someone was a 45% taxpayer in the UK but paid tax abroad at the rate of 47% on a particular source of taxable income or capital gain, then HMRC would restrict FTCR to 45%, if the relief can be allowed.
Also, any work in the US will be liable to both Federal and State Tax there. You must provide HMRC with evidence of the tax paid in the US, by retaining the relevant paperwork i.e. forms 1042-S, US tax return etc.
For more information, refer to HMRC Help Sheet 263 ‘Relief For Foreign Tax Paid’. Use the fact sheet for the relevant year of income received.
HMRC refreshes this sheet every year for legislative changes, so make sure you look at the right sheet for the relevant year you’ve received income, because things can change.
Other things to consider, including National Insurance contributions
Don’t confuse National Insurance with income tax. National Insurance contributions are a tax on earnings usually paid by your employer – National Insurance is not an annual tax. Your National Insurance contributions will usually be taken off automatically before your employer pays your wages.
As National Insurance is a consequence of earnings in a specific period, then it is calculated automatically. You will get the right amount by virtue of entering the correct income figures when you submit your tax return. National Insurance contributions can be complex as there are multiple classes, it is dependent on income and self-employment/employment and is often not calculated on an annualised basis if via employment.
You pay National Insurance if you’re aged 16 or over and are either an employee earning more than £166 a week, or self-employed and making a profit of £6,365 or more a year.
Also, if you have a student loan, when you earn over a certain income, you will be required to pay back a certain amount of the loan.
How can I contact HMRC?
The easiest way is to get in touch via the following Twitter accounts:
Links to more useful guidance
- Tax Facts: About HMRC https://www.youtube.com/watch?v=O3dDaEkykto
- Tax Facts: Working for yourself https://www.youtube.com/watch?v=b2IXPJYUWs0
- HMRC Business Income Manual (contains useful info regarding gifts)
- Tax Facts: The Hidden Economy (to some extent) https://youtu.be/4vJnQitFpDQ
- Tax Facts: Starting your first job https://www.youtube.com/watch?v=QA94wNeIXyE
- Tax calculators: HMRC has a calculator here and another popular online one is here
- Personal tax accounts – HMRC’s online service for individuals https://www.youtube.com/watch?v=rz2P_l8dMd8
- Your first self assessment tax return https://www.youtube.com/watch?v=_QzNuPkf9Iw
- Why have I been sent a Tax Return https://www.youtube.com/watch?v=9CHjVpoTpgQ
- Expenses if you’re self employed https://www.youtube.com/watch?v=Y_lpys4Kksk
- HMRC – Am I Trading or Not? https://www.youtube.com/watch?v=MYgCctGY_Ug
- Registering for Self-Assessment https://www.youtube.com/watch?v=9dWawO6gdT8
- Class 2 National Insurance: Self-Assessment https://www.youtube.com/watch?v=9I2UThBgIBU
- What records do I keep as a self-employed person? https://www.youtube.com/watch?v=WYUhtUQL0Q0
- Budgeting for your Self-Assessment Tax Bill https://www.youtube.com/watch?v=s24M389lWJg
- Paying your Self-Assessment tax bill https://www.youtube.com/watch?v=NQMLcf-hF7c
- Transactions in foreign currency and VAT https://www.gov.uk/guidance/foreign-currency-transactions-vat-and-tour-operators
- For Self-Employment https://www.gov.uk/government/collections/self-assessment-helpsheets-self-employment-and-partnerships
- In respect of Employment https://www.gov.uk/government/collections/self-assessment-helpsheets-employment
Image source: Freeimages.com/Sam Savine