Have you ever wondered if you need to tell the tax man about that massage the lovely PR person gave you as a thank you for participating in their campaign. Or if he should be privy to that vacuum cleaner you reviewed (and kept). Liz Jarvis from The Mum Blog shows us that tax doesn’t have to be taxing.
As many of us have discovered, apart from making friends and the chance to be part of a brilliant community, blogging can provide you with the opportunity to write product reviews, go on days out and holidays, receive vouchers and even payment for posts.
And more and more bloggers are making money from their blogs, and even running them as at home businesses.
Which can make things a little complicated, from the tax point of view.
So first, the good news. ‘If you blog either as a business or as a hobby and a PR offers you a product to blog about because there hasn’t been any underlying terms then the product needn’t be declared,’ says Lisa Collins from Chartered Accountants Totallybalanced.co.uk.
Things get more complicated, however, if you earn money from blogging.
‘In the eyes of HMRC there is no minimum limit where you would have to start declaring any extra income that you have and so as soon as you are making profit from your blog (ie the income you receive from it exceeds the costs of running it) then this income should be declared to HMRC,’ says chartered accountant Dawn Brown from ABC North East and blogs as Knees Up Mother Brown.
‘If you’re already an employee and are paying tax through a PAYE code then you can contact HMRC and ask them to adjust your tax code so that any tax owed can be taken through PAYE throughout the following year. This can be done for earnings up to £2,500 but once you exceed this you will need to register for Self Assessment.
‘If you’re 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.’
What’s my tax liability?
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 – but, and this is important: that doesn’t mean you don’t have to declare it.
Any profits over your tax free allowance are subject to tax of 20%* up to £37,400* and 40%* up to £150k* and 50% over £150k*.
Hobby, or business?
‘If you run your blog as a hobby then you will be able to offset any running expenses such as web-hosting, domain registration etc against this income,’ says Dawn Brown. ‘You would not however be able to carry any losses forward or offset them against other income.
‘If you run your blog as a business then if after deducting all expenses from the income, you have a loss, this can be carried forward or used to offset other income in your self assessment. The HMRC would need to be convinced that your blog is actually a business and not an expensive hobby if you are consistently making losses though.’
And if you are running your blog as a business – and it’s your sole income – then you should register as self-employed with HMRC within 3 months of starting your business.
Blog Income Examples:
- Money paid to you for advertisements or sponsored posts on your blog.
- Any commission made on affiliate sales through your blog.
- The market value of any products you are given to review. In the eyes of HMRC this is classed as a barter transaction as you are effectively receiving the goods in exchange for your blogging services. The item is not classed as a gift as the company is expecting something in return from you.
- Money you receive from companies to reimburse you any travel costs you may have incurred. This would however be offset as the travel expenses would also be classed as valid business expenses.
- If you receive days out or are treated to dinner/lunch or other form of entertainment by a company then this is not necessarily a form of income as you are not receiving any physical assets.
Likewise a small gift from a company would not necessarily be classed as income although expensive gifts or items when a service is expected in return may be.
Blog Expenditure Examples:
- 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)
Assets purchased to maintain your blog such as hard drives, laptops etc would receive capital allowances if you are classed as a business. These are treated differently to expenses and tax advice should be sought.
Finally, whether your blog is run as a hobby or a business it’s still important to keep clear records. And a load of screwed up receipts lying around the house isn’t quite the same thing, apparently *cough*.
* Rates used above are for the 2011-12 tax year.
*Disclaimer: 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.
For more information visit the HMRC web site.
Photo credit: Alan Connor