If you’ve just made Twitch Affiliate or Partner status, or have been receiving donations for a while, then you may need to pay tax on your earnings.
We break down some of the key areas to consider, what actions you need to take, and how to deal with that pesky 30% withholding tax from Twitch!
When do you need to pay tax?
To simplify this answer, if you earn more than £1,000 you’ll need to register with HM Revenue & Customs as self-employed, taxes are then declared & paid through a yearly tax return. You can read more about some of the potential benefits in one of our previous posts; Tax Returns for Streamers.
Since tax rates and earnings vary between individuals, it is best you get in contact with us for a free consultation as to how much tax you can expect to be paying.
Don’t forget though, you can claim back expenses on certain associated costs, such as equipment expenditure and home office costs!
The tax year covers the 12-month period between 06 April to 05 April each year, with income needing to be reported by 31 January the following year at the latest – failure to submit on time can land you a penalty of at least £100.
Do I need to pay tax on donations I receive?
Yes – Donations are taxable!
Googling your way through this one is not advisable. The term ‘donation’ used by Twitch and Patreon is a little misleading since it is a term more commonly reserved for charities – where no tax is paid on donation income.
Donations received from your followers via Twitch, Patreon, or any other platforms are no different from any other form of income you receive and are therefore taxable. If fees have been deducted at source, your gross earnings (sum before fees) will need reporting.
Any receipt of money will form part of your overall ‘earnings’ and as such needs to be considered in the £1,000 threshold as laid out above.
What about earnings from Twitch?
Yes – Twitch earnings can come in various forms; subscriptions, bits, ad revenue… all taxable.
Twitch Affiliate and Partners can earn a portion of money that is paid to subscribe to their channel. There are currently 3-tiers, with Affiliates generally receiving 50% of the fees, and Partners often earning more. In this model, the income figure reported will be the percentage which you receive.
Twitch streamers can generate revenue from adverts that are played via their channels, in similar fashion to YouTube. Models can vary per Partner and generally pay out per 1,000 views, but the key point here is that it is also taxable.
Bits and Cheers!
Bits are Twitch’s virtual currency. Channel subscribers can buy Bits and redeem them for a range of emojis to use in the streamers chatroom. Twitch will pay the broadcaster (you) each time Bits are purchased.
I just made Twitch Affiliate. What is a tax interview?
Firstly, Congrats! You’re on your way to earning money doing something you love – take a moment to celebrate.
Secondly, don’t worry – the tax interview isn’t as scary as it sounds.
In order for Twitch to comply with US reporting obligations, all Twitch providers (whether US-based or outside the US) need to provide their taxpayer information via the ‘Amazon Tax Information Interview’. This interview will be a basic online form which will collect some personal information so that the US tax authorities (IRS) can establish your identity.
It is important you complete this step!
Failure to do so correctly can result in 30% tax being withheld on your earnings. Whilst this can be often reclaimed through Foreign Tax Credits via Double Taxation Relief, it is generally easier to avoid the automatic deduction altogether in the first place.
Is a Limited Company structure beneficial?
If you are a higher earner, you may want to consider a Limited Company structure which will offer better tax advantages and protection.
Generally speaking, once you hit £20k per year we recommend opening discussions with your accountant. Things can take off fast in the streaming world, so don’t leave it too late!
A Limited Company isn’t for everyone as there are higher accountant fees and administrative responsibilities. We help all our clients compare these costs and taxes by drawing up easy to understand illustrations of the Individual vs Ltd calculations.
What is a Form 1042-s?
Twitch will send you a yearly statement of your earnings and any tax that has been withheld by 15 March of the following calendar year. This is called a ‘Form 1042-S Foreign Person’s U.S. Source income Subject to Withholding’.
Whilst these forms do not need filing in any sort of way, it is generally wise to check each year to look at the foreign tax sum (if any), and to retain a copy for your personal records and accountant.
Why am I paying 30% tax through Twitch?
As a UK resident you should not be paying a 30% tax rate on your Twitch earnings. If you are, this is most likely a result of the Tax Interview not flowing through correctly.
How to resolve…
As part of the tax interview you may be asked for a TIN (Tax Identification Number), for UK based individuals this will be your NI number (Individuals), or company UTR (Limited Companies). With this to hand Twitch can hopefully identify you properly, so to avoid the 30% withholding tax on your income.
As a UK resident, you may also need to complete a W-8BEN form to get fully verified. We can help you with this if you need!
How do I keep track of all this?!
We are here to help!
Most accountants and tax advisors will carry out the tax return process once the period has passed – this can be a headache, not to mention the fact you’re left to operate blind for the whole year!
Here at Ocelot Accounting we like to encourage those fees paid across the year, rather than a one-off, so that we can be at hand throughout the year to help guide, advise, plan and manage finances.
We have cloud accounting solutions such as Xero which is a great tool for segregating and recording any income and expenditure relating to your streaming. With a little setup, and occasional monitoring, your annual tax return will be a click of the share button to your accountant.