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Where Taxpayers and Advisers Meet

[UK] Gaming Community (Sticky situation, kinda?)

James899
Posts: 2
Joined: Sat Jun 01, 2019 5:04 am

[UK] Gaming Community (Sticky situation, kinda?)

Postby James899 » Sat Jun 01, 2019 5:49 am

Hi All, thank you for coming to my thread, I have been running my gaming community now since august of 2018 and have recently just looked into getting registered as a business or sole trader so that I can use some other payment gateways that require me to be registered, upon doing this I have been looking into taxing and what I should be doing in regards to tax. I will explain my situation and how I handle my server funds below.

The community I own, allows players to 'donate' (buy) virtual ranks / items, these ranks are paid monthly - since august I have pulled in just under 8500 (Yes I am doing this for profit, I have to pay server fees and other hosting fees which amounts to around £130 per month, the rest of the money is going directly to my business paypal and then directly to my bank) (I am not a registered business and do not have any other form of income, I do not have a job at this current time and the only form of income is the gaming community I am running) I am living in the UK and after researching income tax, I noticed that I am allowed to earn up £12,500 before being taxed (correct me if i'm wrong, I'm no expert) However, after researching around on how to get started as a sole trader, I've noticed I have to do the self assessment and a part of this process is declaring when I've started earning for it to be taxed.

My concern is when reading about the self assessment and registering as a sole-trader, have I been wrong in thinking that all that I have earnt so far (8500 - server costs) isn't taxable? Only reason I have thought this, is due to the allowance of £12,500 allowed in the UK. If I am wrong and have been in the wrong and have been avoiding tax, what is the best way to go about this? This was not intentional and wish to get this setup correctly so that not only I am abiding by the law but also setup for future in case I do earn over the yearly allowance allowed before tax.

Yes, I will be looking into registering as a sole trader or even going down another business route to avoid any future issues (Recommendations appreciated), as for the current - All donations (payments) have been logged onto two systems as well as my business paypal from the very start, which clearly shows exactly how much I've earnt as well as how much I've spent on hosting / server costs + the amount I've been sending myself for profit, so if it does come to it and I have been in the wrong, I can prove how much I've earnt and will be able to pay anything owed if applicable.

All and any advice is appreciated, looking to get this sorted as the more I think about it the more I stress, finding this forum was my best option for tax advice that I required.

Thanks in advance, James

AnthonyR
Posts: 268
Joined: Wed Feb 08, 2017 2:33 pm

Re: [UK] Gaming Community (Sticky situation, kinda?)

Postby AnthonyR » Mon Jun 03, 2019 10:22 am

A lot of the answers to the questions will depend on what you plan to do with the service.

If your donations are simply voluntary contributions paid by people because they want to support what you are doing and assist with the running costs and you don't make any profit (ie you are having to cover some of the costs yourself) then this probably isn't taxable income at all. This is more likely to apply where you are simply hosting a site/service, it sounds like you do more than this.

If there is a fixed fee or a requirement to pay something to use the service or get the item/ranking/etc and you are making a profit already (or you intend to scale things up (advertising etc) to make a profit in future) then it's likely to be a business. In any case it sounds like you are making a profit from this already.

As an individual you have a tax free allowance of £12,500, which means that if you have no other income unless you are making £12,500 of profits you won't have any tax to pay. The £8,500 is taxable income, but the first £12,500 is tax free. Also, bear in mind you can deduct all running cost of the business and it's only the profit that's taxable (not sure if the £8,500 is before or after expenses). There is the trading allowance of £1,000, but this doesn't allow you to deduct any costs, so I'd suggest that this would not be attractive to claim if you are spending £130 a month currently.

At this stage it would be important to find yourself an accountant (ideally one who understands what you are doing) who can advise you on what you need to do to be compliant, particularly if you will grow the business over time. It's then a question of whether you should continue as a sole trader in your personal name or set up a company going forward.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

James899
Posts: 2
Joined: Sat Jun 01, 2019 5:04 am

Re: [UK] Gaming Community (Sticky situation, kinda?)

Postby James899 » Mon Jun 03, 2019 8:27 pm

A lot of the answers to the questions will depend on what you plan to do with the service.

If your donations are simply voluntary contributions paid by people because they want to support what you are doing and assist with the running costs and you don't make any profit (ie you are having to cover some of the costs yourself) then this probably isn't taxable income at all. This is more likely to apply where you are simply hosting a site/service, it sounds like you do more than this.

If there is a fixed fee or a requirement to pay something to use the service or get the item/ranking/etc and you are making a profit already (or you intend to scale things up (advertising etc) to make a profit in future) then it's likely to be a business. In any case it sounds like you are making a profit from this already.

As an individual you have a tax free allowance of £12,500, which means that if you have no other income unless you are making £12,500 of profits you won't have any tax to pay. The £8,500 is taxable income, but the first £12,500 is tax free. Also, bear in mind you can deduct all running cost of the business and it's only the profit that's taxable (not sure if the £8,500 is before or after expenses). There is the trading allowance of £1,000, but this doesn't allow you to deduct any costs, so I'd suggest that this would not be attractive to claim if you are spending £130 a month currently.

At this stage it would be important to find yourself an accountant (ideally one who understands what you are doing) who can advise you on what you need to do to be compliant, particularly if you will grow the business over time. It's then a question of whether you should continue as a sole trader in your personal name or set up a company going forward.
Thank you so much for replying, everything you've stated is very valuable to me, you have done more than enough, thank you for taking the time out of your day to give me advice, valuable advice at that, I will take your advice when it comes to expanding and now can keep my mind at rest as long as Im under the 12.5k limit, Thank you once again for the support, very much appreciated, couldn't have asked for much more.

-James

robbob
Posts: 2764
Joined: Wed Aug 06, 2008 4:01 pm

Re: [UK] Gaming Community (Sticky situation, kinda?)

Postby robbob » Tue Jun 04, 2019 8:27 am

Hello James
Thank you so much for replying, everything you've stated is very valuable to me, you have done more than enough, thank you for taking the time out of your day to give me advice, valuable advice at that, I will take your advice when it comes to expanding and now can keep my mind at rest as long as Im under the 12.5k limit, Thank you once again for the support, very much appreciated, couldn't have asked for much more.
Unfortunately although your tax liability may be nil the same cannot be said with regard to national insurance. Note as you are actively running a trade and have over £1,000 of trading income hmrc request that you register for self assessment and complete tax returns. Registration of the sole trader will sort our your class 2 ni registration and any liability for class 2 must be calculated each year as appropriate - even if you have very low profits you may want to pay the class 2 ni (153.40 for full year ) to get a years stamp towards state pension (for 19/20 class 2 is mandatory if profits exceed 6365 - 6205 for ye 5/4/19). There is also class 4 ni which will be charged at 9% on profits exceeding 8365 (ye 5/4/2020 - 8424 ye 5/4/2019).


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