New Affiliate Query

[garysybex1]

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Just joined and have a few queries regarding my situation.

I have an affiliate website that promotes sportsbooks, eg Ladbrokes, Paddy Power, etc. Recently, I have started to get commission from these sportsbooks for referrals that have joined up from my website. As of yet, I have not registered for Self-Assessment.

I appreciate that I may now have to :
- register as self-employed (even though I am in full time employment as well)
- submit a tax return each year.
- setup a separate bank account for this "business" / hobby

My query relates commission earned from sportsbooks that are not UK based. Actually, they are in different continents, eg Australia, America. This commission is not paid into my UK bank account but either into my Neteller account or Moneybookers account.

Can this be tracked?

Additionally, I take I can claim expenses for my web hosting, doman name purchase, laptop(?) broadband(?)

Thanks

[fizzbird]

My query relates commission earned from sportsbooks that are not UK based. Actually, they are in different continents, eg Australia, America. This commission is not paid into my UK bank account but either into my Neteller account or Moneybookers account.

Can this be tracked?

Additionally, I take I can claim expenses for my web hosting, doman name purchase, laptop(?) broadband(?)

Thanks

Not sure about the foreign earnings - someone else will have encountered this I'm sure? But, like it or not, my advice would be declare it with the rest of your income and don't try and evade tax. It's your choice but if you get caught you risk the revenue making an estimate of what they think you have earned up to the point of getting caught. this could be costly!

I wouldn't worry about opening another account - so long as you can keep track of everything going in and coming out. Unless your business is complex and turning over large amounts it shouldn't be a problem.

Yes you can claim expenses for web hosting, etc. Be careful though as they will expect you to say what percentage is personal and what is purely business.

If you start claiming 100% for each you are likely to attract unwelcome attention.

Special rules apply for capital equipment (big stuff and I would include your laptop here) where you put a value to it and claim a certain amount of depreciation each year.

I know there was a special rule for pcs at one time but not sure if it stil applies (again, someone else might know?).

Here I should point out my answer is based on my own experience and is not authoritive. For best advice you should speak to hm revenue and customs or a qualified accountant.

[hrbs]

Hi

To briefly use tax jargon ... as a UK domiciled and resident person you are legally obliged to declare all worldwide income whether remitted to the UK or not. You may have heard recently that HMRC are targetting individuals with overseas income and the fines are punitive. Also when you sign the tax return you are declaring that you have declared ** all ** your income and tax evasion is a serious offence punishable by fines and when the amounts are large, imprisonment.

You need to treat the online wallets as virtual bank accounts and record income and outgoings from the accounts - a spreadsheet would suffice.

With regards to a separate bank account, although others on the forum are of the opinion that it is not necessary, my over 20 years experience tells me otherwise; especially if you are subject to a tax investigation/audit which may happen if HMRC decide to target online businesses (as they do not understand them) or you are randomly selected for audit. Having all business transactions in one bank account reduces the chance of your personal transactions being scrutinised and will clearly reduce any professional fees involved.

Registering as self employed:

As you know you need to register with HMRC as self employed and start
paying Class 2 NIC, otherwise there is a £100 penalty if you do not
register within 3 months of starting your business. I would suggest
choosing 31 March or 5 April as your accounting date to coincide with
the tax year end and making administrating your tax affairs easier.
You may make a loss in the first period after taking into account
startup costs, hosting, broadband etc and we can offset this against
your other income in your tax return to claim a tax refund.

To register as self employed go to:

HM Revenue & Customs: Starting in business you can fill the form in
online or register over the phone on 08459 15 45 15.

You will need the following info to paste into the online form at
https://www.workingforyourself.co.uk...oyed/form.asp:

Your NI No:

Recent tax reference (UTR):

Employer:


Employer's PAYE reference: (not required on form but may need if
registering over the phone)

Start of self employment: eg 01/10/2007

Nature of business: Website advertising and sales

If you expect your net profit for the year 2007/08 to be less than
£4,635 then you can click the box applying for Small Earnings
Exception or ask about it if registering over the phone (Details at
HM Revenue & Customs: Class 2 National Insurance contributions ).

Self assessment - as you have started to trade in the tax year 2007/2008 you will receive a tax return in April 2008 which will need to include all sources of income as well as your self employed figures.

Any tax due will be payable in January 2009 or can be collected through PAYE via an adjusted tax code. You do not need to tell your employer that you have other sources of income unless obliged to by your contract of employment. They may however query a changed tax code though which is why many of my clients with day jobs choose to pay the self assessment tax in January.

Tax deductible expenses ... see my article on Tax deductible business expenses at tips.hrbs.biz .

Accounting records:

Affiliate marketing is quite straight forward and a simple spreadsheet to record income and expenses would suffice. I strongly recommend opening a separate bank account to use for your business. It can be a second personal account rather than a "business account" so that you can have the benefits of free banking. I would also recommend a
separate credit card for business purchases eg Adwords, hosting, pc equipment etc so as to keep personal and business transactions separate and easily identifiable.

Pre-trading business related expenditure can also be deducted in your first set of accounts and in many cases generate a loss for the first trading period thereby generating a tax refund (assuming you have paid tax eg PAYE).

Hope this helps

Kind regards

Keith
Fixed Fee Accountants and Small Business Specialists - High Royd Business Services Limited
Small business and affiliate marketing specialists

[fizzbird]

Keith
That certainly sums it all up pretty well.
I don't disagree with having a second current account - just don't see the point if earnings are relatively low, obviously, as earnings increase then it starts to make sense.

Overall though, you should be commended for taking the time to give such accurate and useful information.

[garysybex1]

Yes, I agree, the response was very detailed and much appreciated. T.Y. to both for your responses!

I have registered on the phone today with HMRC and also opened a new current account. I now do not have nothing to do until April.

I will keep a detailed account of all affiliate payments I receive. I am still a little unsure about the payments from overseas (Caribbean & Australia) though! I cannot see how the HMRC can track these when they are not paid into my UK bank account. To date, these have been about £3-4k in the last 10-12 weeks. These will vary on a month-to-month basis because I only earn commission on a customer losses.

So, I assume that means 40% will go to in tax??? ( I am in FT employment touching the higger tax band) If it was a 20%, I could live with it but it a lot of money @ 40%.

[fizzbird]

I am still a little unsure about the payments from overseas (Caribbean & Australia) though! I cannot see how the HMRC can track these when they are not paid into my UK bank account.

So, I assume that means 40% will go to in tax??? ( I am in FT employment touching the higger tax band) If it was a 20%, I could live with it but it a lot of money @ 40%.

I think it's difficult nowadays to transfer money from abroad without it showing up somewhere so it's a risky strategy. (Bear in mind that it's not just the revenue & customs who look out for these transactions!!)

You see, if it crops up you can't just say 'OK - I admit it - I've earn't x amount over the last 2 years' - (or whatever?)
You'll get a letter from the revenue that says 'We have uncovered this and think you have been earning xxxxx, please send us cheque for xxxxx or else'
this is aside from any other penalty or criminal prosecution that would ensue.

Sure, it's a nightmare scenario, but are the profits so good that it's worth the risk?

As for your general tax position - are you currently claiming all the allowances that you are entitled to in the course of your employment? Most people don't!

It may be that if you claim certain expenses these will off set any increase in tax the other income incurrs. In other words, keeping you in the lower tax bracket.

At this kind of income level you would be best advised by a professional, as the long term savings will be a lot more than the cost of his/her advice.

[hrbs]

So, I assume that means 40% will go to in tax??? ( I am in FT employment touching the higger tax band) If it was a 20%, I could live with it but it a lot of money @ 40%.

Tax plus Class 4 NIC (8% from lower to upto higher threshold and 1% thereafter) on your profits even if you do not withdraw them from the business.

Many who have fulltime jobs as well as AM income run the AM business through a limited company. The company will pay tax at 20% (2007/08 rate, rising over next few years, subject to an election/new government) and you will only pay personal tax/NI on any salary (tax & NI) or dividend (tax only if you are a higher rate tax payer) ie if funds/profits are withdrawn from the business.

There is an obvious cashflow advantage to the limited company route if you do not wish to withdraw all of the available profits from the business as the company will be able to reinvest its profits after tax and dividends. You can also time dividends to make the most of any basic rate band available in the particular tax year.

Note that dividends are paid pro-rata to shareholders (not an issue if you are the sole owner).

I have written an article on forming a company at tips.hrbs. biz (How to form a limited company) and noted some of the common pitfalls that befall those who form and run companies without taking advice first (eg illegal dividends, not opening company bank account, paying salaries without a PAYE scheme etc).

Regards


Keith
Fixed Fee Accountants and Small Business Specialists - High Royd Business Services Limited
Small business and affiliate marketing specialists

[garysybex1]

Tax plus Class 4 NIC (8% from lower to upto higher threshold and 1% thereafter) on your profits even if you do not withdraw them from the business.

Keith, thanks for the reply again. I would like to know which is the best route for my new AM business. i.e setup a company or not! I didn't really understand your comment above.

is this correct, If I earn £35k per year from my FT job and earn £10k from my AM business between now and April. I would declare the £10k and get a tax bill for £4k (40%) and have to pay £100 class 4 NI?

If I setup a company I would pay £2k tax but am not really sure how I would get the £8k out of my business.

Lastly, I would like to keep my personal account "personal", what is the likelihood that HMRC would require access to my personal account information if I kept a detailed record of all my business transcations.

Thanks
g

[fizzbird]

Try contacting him through his buiness - don't think he is that regular a visitor?

In my opinion, the guy talks senses and is clued up on affiliate marketing (which most accountants and tax office are not).

I looked at his company set up service on his website and looks like a good option for someone in your position.

(in answer to your question: I think you take the money out of a company as a dividend - which is much lower tax rate, or you could just buy a company car!
And your personal account records are readily available to the Revenue & Customs at will; plus your bank is legally obliged to inform the authorities of any irregular transactions).

[hrbs]

In my opinion, the guy talks senses and is clued up on affiliate marketing (which most accountants and tax office are not).

I looked at his company set up service on his website and looks like a good option for someone in your position.

Thanks for the kind words ... have emailed G direct.

Company car ... not such a straight forward issue, but could be bought in the ltd company and then a few months later when the market value has decreased it could be declared as a dividend in specie (ie in lieu of cash). I would suggest taking advice from your accountant as to how this tax/NIC planning device would affect your particular circumstances or feel free to PM me with your info.

Kind regards

Keith
Fixed Fee Accountants and Small Business Specialists - High Royd Business Services Limited

[fizzbird]

Keith
Fixed Fee Accountants and Small Business Specialists - High Royd Business Services Limited

Thanks for the kind words ...

Cheers, credit where it's due.

Company car ... not such a straight forward issue...

Thought as much, that's why I suggested he get proper advice. Personally I am on contract hire - was the best option in my previous carreer but probably not going forward. This is the problem when you sign a 3 year agreement and change your life half way through ... will have to live with it for the time being though!