Affiliate marketing is becoming an increasingly fun way to supplement your income from the comfort of your home, but what about the tax implications? What taxes should you be paying and when?
Do I have to pay tax as an affiliate?
Yes. One of the problems with earning money online is that many see it as an opportunity to make ‘free money’, but unfortunately this isn’t the case.
No matter how you choose to make your living i.e. in an office, self-employed or working from home, the profits you make are taxable and as such are liable to National Insurance Contributions.
Now before you panic, handling your taxes and income is not as hard as you think, so if you are genuinely interested in making money online then you don’t have to dismiss it.
All you need to do is remember to do the following:
Register with HMRC – an as Affiliate you will be classed as self-employed, so before you begin establishing your affiliate network you will first need to register with the HMRC. This will allow them to assign you a password so you can complete a self-assessment form every tax year.
Tip: don’t try to avoid registering, thinking you won’t be caught. The HMRC now uses a programme called Xeron that can identify if you are making a lot of transactions online (i.e. on eBay).
Assessing your income tax – now if your affiliate business is your only source of income, then you will be able to use your personal tax allowance against this income. This will allow you to earn approximately £8,105 a year before tax. After that the standard tax band rates will apply.
If however, you are using you affiliate business to supplement your main income, then you will have to pay tax on all your affiliate earnings (at an appropriate rate).
National Insurance Contributions – as a self-employed individual you will have to pay Class 2 NI contributions which are proximately £2.65 per week (you can pay this by direct debit quarterly). If however you are not earning a lot you can contact the HMRC to see if you qualify for the Small Earnings Exception.
VAT – generally you won’t have to pay VAT, however if you are earning more than £77,000 in a tax year, then you’ll have to register for VAT.
Keep a record of your accounts – as soon as you start it is important that you keep a clear record of all your accounts, costs and income. This will allow you to complete your self assessment form at the end of the tax year and send in the correct amount of tax.
Allowable Expenses – there will be instances as an Affiliate where you will be able to offset items against your income. The usual scenarios include: buying domain names/software for your affiliate business; buying any eBooks or subscriptions relevant to your business; travelling to affiliate events (you can offset the cost of your travel and even your hotel) or using your home as an office.
Get an accountant – as your affiliate business grows, employing the help of a chartered accountant to handle your taxes can not only ensure your self assessment is sent in on time (preventing penalties), but they can make sure it is completed correctly; that you pay the correct income tax, NI and VAT, plus they can help to minimise your tax liabilities.
Just be sure to take advantage of a free business appraisal before you choose to test what services and advice they can offer you as a business.