Getting your head around tax issues can be a rather ‘taxing’ at the best of times (pardon the dreadful pun). For those who have one main source of income – working for an employer – it’s something that never crosses the mind. Out it comes from our wages, without our prompting, and we merely take home what we are allowed.
But what happens when we start to earn a bit extra? Blogging can become quite a lucrative hobby, for some it can grow into a full time occupation.
The sad fact is – if you are earning any money at all from your blog you need to declare it all. The HMRC have their antennae primed 24/7 and if they detect that you are not declaring your full earnings they will trundle towards you snarling loudly and snapping their pincers (apologies for the unpleasant metaphor). Its best to be in the know, and in control from the start.
Decide if your blog is a hobby or a business.
It is important to be clear on this. The way you look at this blog and the way others do, may vary. You may honestly consider your blog to be a hobby but the HMRC may take a different view. They look for something called your Badge of Trade in order to assess whether you qualify as a business or not. Factors that can influence your badge of trade include: the frequency of your transactions; whether those transactions look and feel like a business; and why the transaction happened in the first place.
Check the HMRC website for details: https://www.gov.uk/working-for-yourself/what-counts-as-self-employed
It might be worth asking yourself too, if you intend to grow your blog and make/increase profits. Think long-term. If you’re planning on writing a book, selling art, fashion or anything in the future then you might not have a “blog about art” but a “business that has a blog about art”. It might be worth registering now.
In summary – If you look like a business and act like a business, then you will need to call HMRC and register yourself as a self-employed ‘sole trader’
It’s still a hobby but it does make a profit.
If your blog is clearly still a hobby and you only make a small profit you still need to declare this income. There’s no getting away from it sadly! You have number of options:
Firstly: If you are employed elsewhere and pay tax already through PAYE, and only earn a small amount from your blog – you can contact HMRC directly and ask them to adjust your tax code. Any extra income you make will now be taxed through your main employment. This link basically tells you what you need to know about contacting them to do this.
You can still offset business expenses from any income you make so it’s worth making a note of these, there is a list of them further on in this article
Secondly: Register with HMRC as self-employed so that you complete your own Self Assessment Tax Return and fully declare all earnings (instructions coming up.)
NB* it is quite common to be ’employed’ (by a company) and ‘self employed’ (working on your blog in the evenings or weekend) at the same time.
My blog is my main source of income and HMRC would definitely class it as a business.
The first thing you need to do is register with HMRC as a self-employed sole trader. You should register within three months of starting the business up. The latest you can register for Self-Assessment is the 5th October in the year following the end of the last tax year (which run from April- April.)
So, if you earned money from your blog between April 6th 2015 – April 5th 2016 you will need to make sure that you are registered for self assessment by 5th October 2016.
Once you are officially self employed – you will need to complete a yearly Self-Assessment form. You can do this either online or on paper – and It’s not as hard as it sounds. When you register you will receive two letters.
The first will include your Unique Taxpayer Reference (UTR) and it will confirm that you have a self-assessment record set up too. You need to keep this letter in a safe place. The second letter will include an activation code that will allow you to log in to the online assessment site. If you do wish to fill in your return online, you need to use that activation code within 28 days or you will have to start the process again – which would be more than a tad frustrating it has to be said!
Filling out your tax return is a pretty straightforward process – IF you keep a record of all your earnings and expenses throughout the year. You need to keep all your receipts too to act as proof of your outgoings. Having a big brown envelope to pop them all into is the best way of controlling unruly bits of paper. As for your earnings and expenses – these can be recorded in a good old fashioned accounts book – or an Excel spreadsheet – which ever you are more comfortable with.
At the end of every tax year (April) you need to get all your records and receipts together. You add up what you have earned and subtract all allowable expenses to achieve a net figure. These figures are posted into the appropriate spaces on the Self-Assessment form and, if you are filling in online, the tax you owe will be automatically calculated when you press ‘submit’. There is plenty of guidance on filling out the form on the HMRC website here.
Here are some expenses that you can offset against any income you make as a blogger:
- Your web hosting fees
- Your Domain registration
- Any marketing costs you incur
- Attending conferences and events in the name of blog promotion
- A calculated percentage of your broadband costs
- Assets necessary to maintaining your blog such as laptops and hard drives. You will need to discuss these types of expenditure with an expert though as they are treated differently to regular expenses.
How much will I have to pay?
The current Standard Personal Tax Allowance is £11,000. This is the amount of money you are allowed to earn (from all your employments put together) without having to pay tax. If you earn less you shouldn’t have to pay a thing. If you earn more – you will have to pay 20% tax on whatever you earn OVER the £11,000.
If your blog is a business then you will also need to pay Class 2 National Insurance payments of £2.80 a week, although you can apply for a Small Earnings Exemption certificate if your profits are less than £5965 a year. You will also be liable to pay Class 4 National Insurance contributions of 9% on any profits between £8060 and £43,000 per year and you pay 2% on any profits over that.
You’ll have to arrange your NI payments yourself, either through direct debit or by paying the amount in the payment request/invoice that the HMRC will send you.
Setting up as a Limited Company
This basically means that you are both the owner and employee of your blog. To do this, all you need to do is set up a PAYE system to pay yourself with the earnings from your blog
Should you start a limited company or register as a self-employed sole trader? The best way to do this may depend on how much you earn from your blog (perhaps especially if you have a few different websites). Speaking with an accountant can help you choose the best path.
Hiring an Accountant
An accountant is worth their fee – not only do they handle all of the admin and ensure you comply with everything, they’re also good at ensuring you can “take home” as much of your earnings as possible.