Tax Mistakes That Streamers Should Avoid

The world of streaming is exploding in the UK, isn't it? 

Whether you're diving deep into the lore of the latest RPG, sharing make-up tips, or dishing out some valuable life hacks, the digital realm has offered an unprecedented platform to turn passion into profit. 

And while those rising viewer counts and the thrill of a super chat can be exhilarating, there's a side of the streaming world that tends to get overlooked until it's, well... a tad too late. Yep, we're talking about taxes.

Tax mistakes streamers often make 

This guide will shed light on some shockingly common tax mistakes many streamers make. Whether you're just starting out or have been in the game for a while, we're here to ensure you are equipped with the knowledge you need.

After all, it's not just about making money; it's about smartly managing it, too. Ready to level up your tax knowledge? Let's dive in!

Misunderstanding Tax Residency

Isn't it wild how streaming breaks down borders? Your viewers might be from London, Los Angeles, or even Ljubljana! 

But here's the catch: Where you are located (and sometimes where you've been) can play a huge role in how you handle your taxes. This is what tax experts like to call "tax residency," and misunderstanding it can be a slippery slope.

Essentially, your tax residency determines which country has the right to tax you. But for many in the UK, it's not just about where you're living now, but how long you've lived there and even the number of days you've spent in and out of the country during a tax year. This can get a bit complicated if you've recently relocated or are a frequent jet-setter.

Here's a classic blunder: Let's say you spent a good chunk of the year streaming from sunny Spain, soaking up the vibes and the vitamin D. But then, you return to the UK. If you aren't careful about tracking your days, you might end up owing taxes in both countries. Ouch, right?

Now, the UK does have agreements with several countries to prevent you from being double-taxed. However, you don't want to blindly assume you're covered without checking the specifics.

So, our pro-tip? Be meticulous about where you're spending your time. If you're bouncing between countries or have made a big move recently, it might be worth seeking guidance on your tax residency status because the last thing you want is a surprise tax bill from your "vacation" days.

Not Recognising Streaming as a Business

Remember when you first started streaming, and it was all just for fun? Then, as you dove deeper, those viewer counts rose, donations started pouring in, and brands began knocking at your digital door. It's been an incredible journey, right? But here's where things get a tad tricky. That line between hobby and business? It's thinner than you might think.

Here's the real talk: HMRC (Her Majesty's Revenue and Customs, for those new to the tax jargon) doesn't particularly care if you think of streaming as a fun side hustle. If you're earning from it - and yep, this includes donations, ads, partnerships, the lot - they see it as a business. And guess what? Businesses have different tax obligations.

One of the biggest blunders we see streamers make is not registering as self-employed. In the eyes of the tax authorities, if you're earning money outside of traditional employment, you're essentially running a mini-business.

So, it's crucial to let HMRC know within the first three months of starting to earn. And no, it doesn't matter if it's just a few quid here and there. 

Miss this step? Well, the taxman isn't known for his sense of humour. You could face penalties, and nobody wants that, especially when it's avoidable.

But hey, there's a silver lining! Recognising your streaming as a business isn't just about responsibilities; it comes with perks, too. Think expenses, deductions, and more - all things we'll dive into later.

Bottom line? Treat your streaming venture with the same respect and attention as any business out there. After all, you've worked hard for it. Don't let oversight on the paperwork side of things take away from your success.

Ignoring VAT (Value Added Tax) Implications

Let's talk about three letters that might seem harmless on their own but can pack a punch when it comes to your finances: VAT. That stands for Value Added Tax. You've probably seen it tacked onto prices when buying stuff, but did you know it might also play a role in your streaming world?

Now, don't zone out on us; this is crucial. As your streaming business grows, especially if you're raking in a decent amount from subscriptions, merch sales, and more, you might breach the VAT threshold. And when that happens, the tax game changes a bit.

Now, you might be thinking, "I'm just streaming from my room, why does VAT matter?" 

Well, once your annual earnings from all your business activities surpass a certain limit (and this threshold can change, so always keep an eye out), you must register for VAT. And this means charging VAT on your taxable supplies and, importantly, handing that over to HMRC.

There's a catch, though. Not everything you earn might be subject to VAT. For instance, donations from your lovely fans? Generally, they're VAT-free. But, say, a branded hoodie you're selling? That's a different story.

Can you skip the VAT registration altogether? That's a minefield of potential penalties and back payments. And trust us; you'd rather invest that money in a shiny new streaming setup or, you know, a well-deserved holiday.

Our top tip? As your income inches closer to that VAT threshold, it's high time to get a bit of advice. Whether you dive deep into HMRC's resources or chat with an accountant familiar with the streaming space, make sure you're not caught off guard by VAT's intricacies.

Because, let's face it, nobody likes unexpected costs, especially not when they can be dodged with a bit of knowledge and planning.

Failing to Declare All Income Sources

We get it, the world of streaming isn't just about broadcasting live. 

It's a universe teeming with income opportunities. From that hilarious merch idea you brought to life to the ad revenue from those highlight clips you post and even the odd brand partnership for that energy drink you swear by—there's money coming in from all directions. And it's fantastic... until tax season rolls around.

You see, when it comes to the taxman, every little counts. That means every bit of income, no matter how small or sporadic, needs to be declared. And this is where many streamers stumble.

They might remember the big chunks like monthly subscriptions but forget about those sporadic affiliate commissions or the revenue from selling old equipment.

It's not just about being honest (although that's vital); it's about being thorough. Believe us, HMRC has seen it all, and they have a knack for catching what's been missed out, whether intentionally or not.

Here's a potential pitfall to ponder: You've got a supportive viewer who donates every once in a while, but instead of using the standard channels, they PayPal you directly. It might feel like a casual transaction but to HMRC? That's income, friend.

And hey, don't fall into the trap of thinking, "Oh, it's just a one-off." Even one-off payments for guest appearances, cameos, or special projects count. So, what's a streamer to do? Well, start by keeping meticulous records.

Whether you use a fancy app, a spreadsheet, or even a good old-fashioned notebook, log every income source. Date, amount, source – jot it all down. Not only does this make tax time less of a headache, but it also gives you a clearer picture of your financial health.

In essence, think of your streaming journey as a game with many side quests. Each income stream, big or small, is a quest. And to truly master the game? You need to keep track of every single one.

Neglecting Allowable Deductions

Alright, so we've talked a lot about the money coming in, but what about the money going out? 

Every streaming setup comes with costs, from the humble to the high-end. That super-responsive microphone? Cost. The green screen that gives you those oh-so-professional backdrops? Cost. Even the chair you're sitting on, ensuring you're comfy during those marathon streams, has a price tag. 

But here's the good news: many of these costs can be deducted from your taxable income, potentially saving you a pretty penny income tax time. But the hiccup here is so many streamers, both newbies and old-timers, often overlook or are unaware of these "allowable deductions." And by doing so, they're essentially giving away money. Ouch!

Imagine buying a game specifically to stream it. That's not just a purchase; it's an investment in your business. The same goes for a portion of your internet bill, considering the bandwidth you're using to reach your fans. Even that funky mood lighting that sets the atmosphere for your streams? Potentially deductible.

However, there's a balance to strike. The key is ensuring the expenses are "wholly and exclusively" for the business. So, if you're using that superfast internet for both personal Netflix binges and streaming, only a portion of it can be claimed. The challenge is working out what's fair.

Now, before you start diving into receipts and invoices, here's a word of caution. While HMRC is all for you claiming legitimate business expenses, they're also eagle-eyed about spotting what doesn't quite fit the bill. So, claiming an unrelated shopping spree as a "costume expense"? Tread carefully.

Our golden tip for you? Keep records of everything. Receipts, invoices, bank statements – hold onto them. And when in doubt, seek accounting advice. There are plenty of accountants out there (like us!) who are well-versed in the unique world of streaming.

In the grand theatre of streaming, think of deductions as your supporting actors. They might not be the main event, but they are critical to your financial storyline. So give them the attention they deserve!

Mishandling International Income

Streaming is an amazing gig, isn't it? You're here in the UK, but your content can captivate someone halfway around the globe. And with that global reach comes global income.  Maybe you've got subscribers from the US, donations from Australia, or brand partnerships from Japan. It's an international affair, and while that's beyond exciting, it can also weave a complex web when tax season rolls around.

Here's something that might surprise you: just because you earn money abroad doesn't mean it's exempt from UK taxes. If you're based in the UK, and you're a UK resident, HMRC expects you to declare all your worldwide income. Yep, that's right—all of it, no matter where it comes from.

"But wait," you might say, "I already paid tax on that income in another country!" And that's where things can get a bit delicate.

The UK has double taxation agreements with many countries, which means you shouldn't be taxed twice on the same income. But—and this is a big but—you need to be proactive in ensuring you're not overpaying. 

Here's a quick example: Let's say you did a special streaming collaboration with a company based in Canada and got paid handsomely for it. If tax was deducted at the source (that is, in Canada), you need to declare that income on your UK tax return. But, thanks to the double taxation agreement, you can claim relief so that you're not unfairly taxed twice.

It can feel a tad overwhelming, can't it? Different countries, different tax rules, potential language barriers... the list goes on. But you've got this. Clarity is your best friend when navigating these international waters. Make sure you have clear records of where your income came from, any taxes already paid, and any relevant tax documentation from the source country.

Not Preparing for the Payment on Account System

You're nailing the streaming game, and with all this success (and, yep, income) comes a whole new level of tax responsibilities. If you've been in the self-employed game for a while, you might have heard whispers of the 'Payment on Account' system. And if not, well, consider this your friendly introduction.

Picture this: You've done the maths, worked out your tax for the year, and made your payment. Whew, all done, right? Not quite. HMRC, in its ever-prudent approach, says, "Hey, since you earned a fair bit this year, let's make sure next year is covered too!" And thus, you're introduced to the concept of payments on account.

Here's the simple breakdown: Payments on account are advance payments towards your next tax bill. Essentially, HMRC is anticipating that you'll have a similar tax bill next year, so they ask you to pay half of your estimated bill in advance twice a year. Yes, twice!

Now, you might be thinking, "Whoa, that's a curveball!" And you wouldn't be wrong. Many streamers (and self-employed folks in general) are caught off-guard by this. You've just settled one tax bill, and—bam!—you're already chipping away at the next one. But here's the silver lining. By getting into the groove of the Payment on Account system, you're essentially future-proofing yourself. It's a bit like saving up for that epic gaming rig, bit by bit, so the financial hit doesn't sting as much when you finally make the purchase.

So, how can you ace this? Start by budgeting for it. When you're setting aside money for taxes (which we hope you're doing!), remember to factor in those payments on account. And if you believe your income will significantly drop in the next tax year (maybe you're taking a streaming hiatus), you can apply to reduce these payments.

Overlooking National Insurance Contributions

Now, let's chat about something that many streamers (and quite a few self-employed folks) tend to slide to the back burner: National Insurance Contributions, or NICs for short. It's like that side quest you keep postponing because the main storyline is just too gripping. But guess what? That side quest has some real perks, and you don't want to miss out.

Firstly, let's demystify what NICs are all about. National Insurance is a bit like a club membership. By paying into it, you're earning your rights to certain state benefits, like the State Pension, when the time comes to hang up that streaming hat. And here's the clincher: if you're earning money from your streams, you might need to make these contributions.

There are two types to be aware of as a self-employed individual:

• Class 2 NICs: Think of these as your basic membership fee. If your profits are over a certain threshold, you'll need to pay a flat weekly rate. It's not a huge amount, but it's crucial for safeguarding those future benefits.
  
  
• Class 4 NICs: Now, this one's a bit trickier. If your profits go above a higher threshold, you'll start paying a percentage of your profits as Class 4 NICs. It's a step up, and the rate you pay will vary depending on just how well you're doing.

"But why should I bother?" you might wonder. Here's why: those benefits aren't just about the distant future. They also cover things like Employment and Support Allowance, which can be a lifeline if you find yourself unable to stream due to illness or other circumstances.

Now, here's a pro tip: Keep tabs on your earnings. Know where you stand in relation to those NIC thresholds. And just like you might regularly check your stream's analytics, occasionally peek a your profit levels and adjust your NIC payments accordingly. Remember, overlooking NICs isn't just about missing a payment. It's about potentially missing out on vital support further down the road. Sure, it's a side quest, but it's one with rewards that are absolutely worth the effort.

Failing to Seek Professional Tax Advice

As you continue to dazzle audiences with your content and gameplays, there's one quest that even the best of players sometimes fumble on navigating the labyrinth of taxes and financial responsibilities. 

It's like that tricky level in a game where you think you've got it all figured out, and then—oops!—you miss a hidden trap. Now, here's a revelation: you don't have to do it all on your own. In fact, sometimes, it's smarter not to. Imagine playing a co-op game. You've got your strengths; maybe you're fantastic at strategy, but your partner is the expert at execution.

Believe it or not, the world of taxes is quite similar. While you're the master of your streaming universe, there are professionals out there whose whole gig is understanding and tackling the nuances of tax for individuals just like you. "But hey," you might say, "I've been doing this for a while, and I've got a good grip on my finances!" And that's brilliant! But even the most experienced players can sometimes benefit from a fresh pair of eyes, especially when the rules of the game (or in this case, tax regulations) are ever-evolving.

Here's why you might consider seeking professional advice:

• Tailored Guidance: Everyone's streaming journey is unique. Maybe you've got international income, perhaps you're dabbling in merchandising, or you've taken on some brand sponsorships. An expert can provide advice tailored to your specific situation.
  
  
• Peace of Mind: Let's be real, tax can be...well, taxing. Having a professional on board can offer the assurance that you're not missing any hidden deductions or making any costly mistakes.
  
  
• Time-Saver: Time spent wrestling with tax forms and guidelines is time away from your stream and community. Professionals can help streamline the process, giving you back precious hours.
  
  
• Future Planning: Thinking about scaling up? Planning some significant investments in your streaming setup? A financial advisor or accountant can help map out the best course of action.

The takeaway here? It's okay to ask for help. In fact, it's more than okay—it's savvy. It's recognising that every player has their strengths in the grand game of streaming. And sometimes, teaming up with a tax expert like Capture Accounting is the cheat code you need to level up. Remember, you've built an incredible platform and community. Guard it, grow it, and when it comes to the complicated world of taxes, don't be shy to bring in a co-op partner for the win!

Not Planning for the Future

When you're in the zone, smashing records, building your community, and just generally enjoying the streaming high, it's all too easy to live in the now. Every "follow", "like", or donation feels like an adrenaline rush. But here's a little truth bomb: the streaming world, as electrifying as it is, can also be quite unpredictable. The platform algorithms change, viewer tastes evolve, and life can throw in some unexpected curveballs.

So, let's take a moment and chat about something every seasoned gamer understands the importance of planning a few moves ahead:

• Emergency Funds: Just as in any business, there might be lean times. Maybe there's a tech malfunction, or perhaps you decide to take a short break. Having an emergency fund means you've got a safety net. It's like that spare life in a game you're so thankful to have when things get tricky.
  
  
• Retirement Planning: Yep, it might seem ages away, especially when you're in the thick of streaming action. But trust us, future you will be SO grateful if you start thinking about this now. Look into pension schemes, ISAs, or other long-term investments that align with your goals.
  
  
• Diversification: You know the old saying, "Don't put all your eggs in one basket"? It's sage advice. Think about expanding your brand through merchandise, podcasting, or even writing. Different income streams can offer stability.
  
  
• Insurance: As a streamer, your tech setup is your lifeline. Consider insurances that cover your equipment or even income protection insurance for those 'just in case' moments.
  
  
• Continuous Learning: The digital landscape is ever-evolving. By investing in courses or resources that hone your skills or offer new insights, you're future-proofing your streaming career.
  
  
• Legacy and Estate Planning: It might seem morbid, but it's essential. As you grow and accumulate assets, consider how you'd like to manage or distribute them.

Think of all this as setting up save points in a game. Each plan and decision ensures that no matter what challenges come your way, you have the resources and strategies to navigate them.

Conclusion

We've embarked on quite the journey together, haven't we? From the nitty-gritty of taxes to future-proofing your streaming career, we've navigated the highs and lows of the financial side of streaming. And guess what? You've come out the other side armed with knowledge and insights, ready to tackle those tax challenges head-on.

Are you a professional streamer? Check out our helpful accounting tips here:

• Can you write off streaming services?
• All about taxes for influencers
• What expenses can you claim?