UK tax considerations for E-sports earnings

If you earn Esports income from activities such as streaming, sponsorship, or tournament winnings, did you know you may need to declare this to HMRC and you may have tax to pay?

There are more and more opportunities to make money from Esports, whether as an individual or a team, and in some cases the cash at stake can be substantial. With increased cash on offer, it’s inevitable that HMRC will increase their interest, so it’s imperative to ensure you are keeping compliant by declaring what you owe each year.

Some basics around Esports Earnings

Esports income can come from a variety of sources and can range in value from small ad hoc payments to larger substantial sums, so every individual’s tax position will be slightly different. Sources of taxable income can include streaming and donation income from sites such as Twitch, YouTube and Patreon; sponsorship or endorsement income; and tournament winnings.

There’s a good chance you need to disclose your earnings to HMRC if you’re earning money through any of these sources, even if you don’t think you will have any income tax to pay.

If you are earning more than the trading allowance in Esports income in a tax year, then you should be reporting this to HMRC as a self-employment business. Currently the trading allowance is £1,000 income, ignoring expenses, and the tax year runs from 6 April to 5 April. This applies regardless of whether you have a ‘normal’ salaried job where tax is deducted at source (via PAYE) so it’s not always obvious that your income earned outside your job might count as a separate business.

If you receive any prize money from outside the UK, tax may be withheld on these earnings. You should always make sure you are aware if this is the case so you can ensure your own position is correct, and of course avoid double taxation or claim any relief on the foreign tax paid that you are entitled to.

What do I need to do if I’m making more than £1,000 in Esports income outside of employment?

There are a few requirements if you have a self-employment business. First and foremost you need to ensure you register with HMRC as self-employed. This needs to be done by 5 October following the end of the tax year you first start your self-employment and is a one-off job.

You then need to file a UK self-assessment tax return every year by 31 January following the end of the tax year for as long as you continue your self-employment business.

For example, if you start earning income from Esports in June 2023, you would need to notify HMRC by 5 October 2024, and file your first tax return by 31 January 2025, and annually thereafter. 

What happens if I’ve been earning Esports income for a few years and didn’t tell HMRC?

First things first – don’t panic. If you’ve been earning Esports income for some time but this is the first time you’ve thought about potential tax liabilities then the good news is we’re here to help. If you’ve never filed tax returns before, or you have but you’ve missed Esports income, then we will probably recommend that you make a submission to HMRC using their Digital Disclosure Service. This facility exists specifically to help regularise your historic tax affairs.

We have helped hundreds if not thousands of clients prepare these voluntary disclosures over the years and know how to resolve these cases quickly, causing minimal disruption and stress for you.

So what do I do now?

The best thing you can do if you think you have a UK tax liability but have never done anything about it is come forward voluntarily before HMRC make contact with you. HMRC’s powers to gather data from external sources are only increasing over time, so it’s a fair assumption that the sources of your income such as Twitch and Youtube will eventually be sharing their data with HMRC directly. If HMRC write to you first, the financial penalties can be significantly higher, and you will lose control over the whole process. In short, if you’re worried you might have a tax problem, don’t ignore it or try waiting it out. You’ll only put yourself in a worse position in the long run.

How we can help at Menzies?

We have a team of tax experts at Menzies and we are one of the leading firms in the UK who specialise in tax disclosure work. If you have any questions or worries, reach out to us now and we’ll get back to you.

Call our free confidential hotline – 07813003194

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