Dawn Brown is a Chartered Accountant with who runs her own practice ABC North East specialising in small business accounting and tax advice. Aside from running her own business Dawn is also a busy mum to 2 under 18 months and can be found on her parenting blog Knees Up Mother Brown and on twitter @Dawnie_Brown. Over to Dawn...
I have put together the following guide to blogging and tax. Please bear in mind that tax is a huge area and that it also depends on any other income you may have etc and so this guide is a general guide and if you have any concerns relating to your personal taxation situation then you should really speak to an accountant or tax adviser.
So make sure you are prepared with a big mug of tea and biscuits and we shall begin :) Any questions on anything, just leave me a comment and I’ll answer it for you this week.
Do I need to pay tax?
The short answer to this is YES! If you are making any money from your blog then you need to start considering whether there is tax to pay. There is very little income in the UK that is not taxable – you can see a full list of this here on the HMRC website.
Everybody has a personal allowance but once this has been exceeded then any other income not on that list is then subject to income tax.
Hobby or Business?
The first step in figuring out how and how much tax you have to pay is working out whether your blog is a hobby or a business. Now you may consider that your blog is just your hobby but the way that HMRC views it could be different. HMRC looks for something called “Badges of Trade” in order to assess whether you are operating as a business or not. The full list of them is here.
The main thing that you really need to consider from all that is whether you are intending to make a profit from your blog (even though you may not actually be making one at present), if you are regularly doing business like transactions (ie charging for advertisements) and how the transactions are carried out. If you are unsure as to whether you should register your blog as a business then you should speak to an accountant or tax adviser.
I think I would be classed as a hobby even though occasionally I make a small income from my blog?
If you don’t meet any of the badges of trade about and feel that HMRC would class your blog as a hobby then you will still need to pay tax on any income you occasionally make through it. You won’t need to register for self assessment if you are already paying tax through PAYE, if the income is up to £2500 you can contact HMRC and ask them to adjust your PAYE code so that any extra tax will be deducted through your employer. This link basically tells you what you need to know about contacting them to do this.
Remember you can still deduct the costs of running your blog from any income you receive but whereas with a business if you make a loss you could offset it against other income, with hobby income (ie casual earnings) you can’t use losses to carry forward or set against other income.
OK so I think HMRC would view my blog as a business, what should I do now?
The first thing you will need to do is register with HMRC for self assessment, this should be done within 3 months of starting your business. The latest you can register for self assessment is the 5th October in the year following the tax year, so if your blog earned you income between 6th April 2010 and 5th April 2011 you will need to make sure you are registered for self assessment by 5th October 2011!
So how much tax will I have to pay?
If you run your blog as a business then you will need to pay Class 2 National Insurance payments of £2.50* per week although you can apply for a Small Earnings Exemption certificate if your earnings are less than £5,315* per year. You will also be liable to pay Class 4 National Insurance contributions of 9%* on any profits between £7,225* and £42,475* per year and you pay 2%* on any profits over that.
Income tax is payable on any profits from the blog whether it is classed as a business or a hobby. Everybody is entitled to a personal “tax free” allowance of £7,475* and if your profits plus any other taxable income you receive do not exceed this then no income tax would be payable. Any profits over this are subject to tax of 20%* up to £37,400* and 40%* up to £150k* and 50% over £150k*.
*rates used are for the tax year 2011/12
What kind of income is classed as taxable?
Here are a few common types of income you may get from your blog:
- Advertising
- Sponsored posts
- Affiliate sales – where you get a % for sales made through a link from your blog
- Payments in Kind – ie if you are given a product in exchange for an advertisement on your blog. For this you should record a fair market value, this could be the lower of either the usual rate you charge for an advertisement on your blog or the market value of the product you received.
What isn’t taxable are:
- Goody bags you receive from PR events, if you are not expected to do anything in return for them then they can be classed as gifts
- Days out or being entertained by PR/Companies. Again as long as there are no “terms and conditions” relating to the day out then it is classed as you are being entertained and you will not need to pay tax relating to this.
- Items received for review – this is a bit of a grey area but as long as you are going to use the item for personal use and just post your personal opinion of the product on your blog then you won’t need to pay tax on it. However if you acquire the products with the intention of selling them on, then they will be taxable!
So what expenses can I claim to deduct against this income?
The full list of allowable business expenses can be found here on the HMRC website.
Basically an expense is allowable if it was reasonably incurred and wholly and exclusively incurred for the purpose of the business. Although there are some expenses which are not deductible for tax purposes.
Tax allowable examples include:
- Web hosting fees
- Domain Registration
- Marketing costs such as advertising your blog, business cards etc
- Attending conferences to promote your blog – ie the cost of attending Cybermummy
- A proportion of your broadband costs (you would need to apportion this between private and business use)
- Heating and Lighting – BUT rules apply to this (see below)
What about Heating, Lighting, Home Office costs?
Certain costs can be claimed for using your home as your office if your blog is classed as a business. Full guidance on what you can and cannot claim can be found here.
You can alternatively claim a weekly allowance, the HMRC would not query a £2/£3 weekly charge for home office use being put through as an expense.
Expenses which are not tax deductible include:
- Capital items such as laptops, hard drives etc, capital allowances can be claimed on these so see further down for details about this.
- Entertaining – if you take a PR/Company out for lunch/dinner and pay for it yourself you will not be able to claim this against tax as entertaining is not allowable!
- Any private portion of expenses claimed (ie if you use your broadband 50% of the time for business and 50% of the time for personal use then only 50% can be claimed).
Capital Allowances
If you run your blog as a business then any capital assets you buy for it such as hard drives, laptops etc can be used to claim capital allowances. The most relevant capital allowance that you could claim would be the AIA (Annual Investment Allowance). Until April 2012 you can basically spent up to £100k on assets for your business (not cars or buildings) and claim 100% of the cost as a capital allowance which will reduce your taxable profits, from April 2012 this will drop to £25k. If you buy a laptop which you are going to also use for personal use then you can only claim a capital allowance for the business proportion of use!
Right, I know what I can claim as income and expenses, how should I record it?
The main thing you should so whether your blog is a hobby or a business is keep all your receipts!! I personally find the simplest way is to have a big brown envelope and keep putting them in there whenever I incur a business expense.
If you then log all the income/expenses in a spreadsheet this will make completing your self assessment much easier, I’d recommend a different tab for income, expenses and capital items.
It is important to keep all these records for a minimum of 6 years!
How do I complete my self assessment?
The simplest way of completing a self assessment is by doing it online (or getting an accountant to do it for you ;) ) There is however plenty of guidance on the HMRC website here.
I could spend hours telling you which boxes you need to fill in etc but it would a) take far too long and b) I do run a business so I can’t keep giving away my services for free all the time ;) If you do want me to do your self assessment for you and you have no other income aside from PAYE then I can offer a HUGE discount on my normal self assessment fees for you PROVIDING you can get everything to me before 1st December! December and January are by far my busiest months and so unfortunately I can’t offer a discount if you ask me to do your self assessment then :)
When would I have to pay any tax?
Tax for the tax year 2010/11 (6th April 2010 – 5th April 2011) will be payable by 31st January 2012 (the deadline for filing self assessments online and paying any tax due). When you pay this tax you will also notice that they will also add on a 50% prepayment for next years tax bill. This is because when you are paying tax through self assessment on a regular basis the payments go something like this (sorry if this gets a bit confusing but it’s very hard to simplify).
Lets say you have tax of £1000 to pay for tax year 2010/11 and £1500 to pay for tax year 2011/12
On 31/1/12 you will submit your tax return for 2010/11 and pay the £1000 tax but you will also pay a 50% payment towards your 2011/12 bill based on the 2010/11 bill (£500) so total payable will be £1500.
On 31/7/12 you will pay your second payment on account towards your 2011/12 tax bill (ie £500)
On 31/1/13 you will pay any balancing amount on your 2011/12 tax bill and 50% payment on account towards next years tax bill. So if the tax bill is £1500, you have already paid £500 on 31/1/12 and £500 on 31/7/12 and so you will need to pay the remaining £500 plus 50% payment on account of £750 so total payable would be £1250.
There is more about payment of tax here:
http://www.hmrc.gov.uk/manuals/salfmanual/salf303.htm
Other things you need to consider relating to income and blogging!
- If you are claiming child tax credits or working tax credits (or other benefits directly related to your income) then you will also need to include extra income from your blog on your tax credit renewal form. You only currently need to declare extra income over £300 (that is total extra income not just your blog income) and so if your total extra income does not exceed £300 then you need not declare it, if it does then you only need to declare the amount over £300 (ie if your extra income is £500 then you would only declare £200 on your tax credit renewal form). The Tax Credit Office may charge you a penalty if they find that you have supplied incorrect information in your claim. But they'll contact you to tell you - they never give automatic penalties.
- Anything you win in competitions from other blogs etc is not taxable.
VAT and Limited Companies
The current limit where you would have to register for VAT is £73,000 turnover in a year, for the purposes of this post I’m assuming most of your blogs don’t generate this and so I will skim over the subject. You can of course voluntarily register for VAT before you reach this level of turnover if you feel it will benefit you! More information can be found here for those interested.
There is the option of setting up your blog as a Limited Company if you feel this is of benefit to you although the accounting costs do increase and there is more paperwork involved. I’m not going to go into this now but if it is something you want more information on it can be found here.
Disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet and the information above is general information only and should not be relied upon solely, if you have any queries about your tax position then you should speak to an Accountant or Tax Advisor to discuss your specific circumstances. -Dawn Brown
Photo credit: Alan Cleaver
