Twitch Earnings | When do I need to pay tax?

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 Twitch earnings.

In this guide, our expert accountants for streamers are breaking 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 on Twitch earnings?

If you earn more than £1,000 per year in Twitch earnings, you’ll need to register with HM Revenue & Customs as self-employed. Taxes are then declared and paid through a yearly tax return. You can learn more about the process of completing a tax return for streamers in our previous guide, which you’ll find here.

The UK 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.

Since tax rates and earnings vary between individuals, we recommend getting in contact with us for a free consultation. We can assess your income from Twitch and advise how much tax you can expect to be paying based on your unique situation.

Don’t forget though, you can also claim back expenses on certain associated costs. For instance, this can include equipment expenditure and home office costs! With our specialist services assessing taxes for streamers, we can help you navigate this process and get your finances in the strongest possible position.

Do I need to pay tax on donations I receive from Twitch?

Yes – donations through Twitch and other streaming services 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 Twitch ‘earnings’ and as such needs to be considered in the £1,000 threshold as laid out above.

What about earnings from Twitch?

Yes, you’ll need to pay tax on your earnings from Twitch if it totals more than £1,000 each year. Twitch earnings can come in various forms: subscriptions, bits, ad revenue, and so on, all of which are taxable.

Subscription Revenue

Twitch Affiliate and Partners can earn a portion of the money paid by users to subscribe to their channel. There are currently three 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.

Ad Revenue

Twitch streamers can generate revenue from adverts that are played on 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 Twitch 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 for Twitch earnings?

If you are a higher earner, you may want to consider a Limited Company structure for your Twitch earnings and taxes. This 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!

That being said, a Limited Company isn’t for everyone. There are higher accountant fees and administrative responsibilities when using a Limited Company structure. At Ocelot Accounting, we help all our clients compare these costs and taxes by drawing up easy to understand illustrations of the Individual vs Ltd calculations, helping you make the best decision for your Twitch earnings.

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 for your accountant to keep hold of.

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 National Insurance number (Individuals), or company UTR (Limited Companies). With this to hand, Twitch can hopefully identify you properly, enabling you to avoid the 30% withholding tax on your Twitch 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?!

Ocelot are here to help!

Most accountants and tax advisors will carry out the tax return process once the period in question has already 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, however, we like to encourage those fees to be paid across the year, rather than as a one-off. This ensures we can be at hand throughout the year to help guide, advise, plan, and manage your Twitch earnings whenever you need us.

To best help you, we use a range of advanced but stress-free cloud accounting solutions. This includes Xero; a great tool for segregating and recording any Twitch income and expenditure relating to your streaming. With a little setup, and occasional monitoring, your annual tax return will be a simple click of the share button to your accountant.

If you’re interested in our accounting services for Twitch and other streaming platforms, feel free to get in contact with us today. We have years of experience working with a range of individuals, from content creators to gaming and e-sports players. And remember, even if you’ve just started out, it’s best to plan ahead! If you’d like a little more information about how we can support you with your Twitch earnings and taxes, check out our services page for more detail.