How do YouTubers Get Taxed in the UK?

Many YouTubers start their channel as just a hobby. But if your YouTube channel starts earning you money, it's no longer a hobby my friend, it's a business!

YouTubers need to pay tax on their earnings above a certain threshold and if their content is created with profit making in mind. If you're receiving money from AdSense, sponsorships, brand deals, or selling information or products, you must register with HMRC and complete an annual tax return. 

For something that started out as a hobby, hearing that you have to pay taxes can be overwhelming, especially if you have no previous experience in accounting or tax. That's why I've put together this useful guide to show you how and when your YouTube earnings will be taxed, so you don't get caught out.

For a personal consultation, please contact Capture Accounting, specialist accountants for Youtubers.

How do YouTubers pay tax in the UK?

If you earn money from your YouTube channel then it is likely that you will owe tax on your income. If you can argue that your channel is just a hobby, then you may get away with it. You can make up to £1,000 per year tax-free, known as the trading allowance. But generally, most YouTubers who create content are doing so with the intention of making money.

That means you are running a self-employed business. You need to declare your YouTube earnings each year to the tax authorities, i.e. HMRC (Her Majesty’s Revenue Collection), and make income tax payments.

If you don't, you could face hefty fines if HMRC investigates your earnings.

Unless you set up a company, you are considered a self-employed sole trader and must complete a self-assessment tax return each year. In this tax return, you need to work out how much profit you earned, and what your business expenses were and then work out the amount of income tax you owe HMRC.

Although you can do this yourself, it can get quite complex when you have multiple sources of income, such as advertising revenue, Adsense earnings and income from brand deals. Many content creators opt to hire a specialist accountant to help them remain compliant and save them the hassle.

How is taxable income calculated?

How much tax you pay depends on the profit you make. Your profit is the money you make from YouTube earnings minus your allowable expenses. But knowing which expenses you can or can't claim is the tricky bit.

That's why it helps to have an accountant in your corner. Not only will they do your self-assessment tax returns for you, but they will identify every last expense to save you money. More often than not, your accountant can save you more in tax than what you pay them!

How much income tax will I pay on my YouTube earnings?

The following is based on tax rates and bands for 2023/24.

If you have no income from any other sources, i.e. another job, then the first £12,570 you make each year is tax-free. This is known as your personal allowance - the amount you can earn without paying tax. Even if you are earning below this amount, you should still register with HMRC and complete self-assessment tax returns, if you earn in excess of £1,000.

If you make more than £12,570 in the tax year, you are liable to pay tax on the excess. It's worked out as a percentage of your taxable profits. There are different tax rates depending on how much you earn. These tax bands can change each year, but for 2023/4, they are:

• £0 - £12,570 - Tax Free - 0%
• £12,570 - £50,270 - Basic Rate - 20%
• £50,271 - £125,140 - Higher Rate - 40%
• £125,141+ - Additional Rate - 45%

As the UK operates a self-assessment regime you are responsible for working out your own tax bill. If you get it wrong, you could be hit with penalties and interest. It's important to note that you pay tax at the rate of your income that falls between each band. So for £80,000 earnings, the amount of income tax would be:

Personal Allowance: £12,570 is tax-free.



Taxable income: £80,000 - £12,570 = £67,430

Basic Rate: Taxed at 20%

• Tax on the income in the basic rate band: £50,270 (upper limit of basic rate) - £12,570 (lower limit) = £37,700 x 20% = £7,540

Higher Rate: Taxed at 40%

• Tax on the income in the higher rate band: £67,430 - £50,270 (upper limit of basic rate) = £17,160 x 40% = £6,864

Total income tax bill: £7,540+£6,864=£14,404

As you are self-employed, you are also liable to pay National Insurance Contributions (NIC) at a percentage of your total income. At the time of writing, you are liable for Class 2 and Class 4 NICs on earnings above your personal allowance. But from April 2024, self-employed individuals will no longer have to pay Class 2 NICs.

If you're struggling to work out your taxes correctly, be sure to book a call and we can help.

Don't get caught in the 60% tax trap!

If your earnings are within £100,000 and £125,140, you will get caught in what's known as the "60% tax trap", as for every £2 you earn over £100,000, your personal allowance is reduced by £1.

So if your YouTube income is approaching this amount, it's definitely worth getting in touch with an accountant, as you don't want to be paying this much tax!

Consider setting up a limited company

If you're earning over £30,000 a year, it may be better for you to operate through a limited company to save on tax.

Read our blog on what business structure to choose as an influencer.

How to register for a self-assessment tax return as a YouTuber

As a YouTuber, you are considered a self-employed person by HMRC. This means you must register for a self-assessment tax return and pay income tax and National Insurance on your profits from YouTube.

To register, you need to follow these steps:

1. Go to the HMRC website and create a Government Gateway account.
   
   
2. Fill in the online form with your personal details and information about your YouTube business.
   
   
3. You'll then receive a Unique Taxpayer Reference (UTR) number and an activation code by post.
   
   
4. Activate your online account using the activation code.
   
   
5. File your tax return for the previous tax year online before the deadline (31 January).

You must keep records of your income and expenses from YouTube, such as invoices, receipts, bank statements, etc. You can use accounting software like Xero to help you track your finances and prepare your tax return. 

How can I manage taxes for multiple income sources as a YouTuber?

As a successful YouTuber, you may be making money from ad revenue, sponsorships, merchandise sales, donations, etc. It's important to declare all of these income streams on your tax return and pay tax on them accordingly.

To manage taxes for multiple income sources, follow these tips:

1. Separate your personal and business finances. Use a dedicated bank account and card for your YouTuber business and keep track of all the transactions.
   
   
2. Categorise your income and expenses. Use different categories for different types of income and expenses, such as ad revenue, sponsorships, merchandise sales, equipment, software, travel, etc. This will help you report them accurately on your tax return and claim the right deductions.
   
   
3. Save money for taxes. Set aside a percentage of your income every month for taxes. This will help you avoid cash flow problems and penalties when you come to pay your tax bill.

How can I ensure tax compliance with international income?

You might earn income from outside the UK, such as from YouTube's US-based partner program or foreign sponsors or customers. You need to be aware of the tax rules and regulations in the countries where you earn income and comply with them accordingly. This might involve paying taxes in those countries or claiming tax relief or credits in the UK.

To ensure tax compliance with international income, follow these steps:

1. Check the tax treaty between the UK and the country where you earn income. A tax treaty is an agreement that determines how income is taxed between two countries. It can help you avoid double taxation or reduce your tax liability in either country. You can find the list of tax treaties on the HMRC website.
   
   
2. Register for taxes in the country where you earn income if required. Some countries might require you to register for taxes and file a tax return if you earn income from there. You might also need to obtain a tax identification number or a certificate of residence from that country.
   
   
3. Claim foreign tax credit or relief in the UK if applicable. If you pay taxes in another country on your YouTube income, you can claim a foreign tax credit or relief on your UK tax return. This will reduce your UK tax liability by the amount of foreign tax paid or by a percentage of your foreign income.
   
   
4. Alternatively, hire an accountant to take care of the details!

When should a YouTuber get an accountant?

You might be able to handle your taxes independently if you have a straightforward income. However, if you have a complex or large-scale YouTube business, you might benefit from hiring an accountant.

Some of the things an accountant can help you with include:

• Planning and optimising your taxes. An accountant can advise you on how to structure your YouTube business, how to minimise your tax liability and how to take advantage of tax incentives and reliefs.
  
  
• Preparing and filing your tax return. An accountant can help you prepare and file your tax return accurately and on time. They can also deal with any queries or issues from HMRC.
  
  
• Handling audits and disputes. An accountant can represent you in case of an audit or a dispute with HMRC. They can help you gather evidence, negotiate settlements, appeal decisions, etc.

Contact Capture Accounting for specialist advice on how YouTubers pay taxes

If you're a YouTuber and are earning (or about to earn) over £4,000 per month, then get in touch to see how we could help you to manage your tax affairs, keep you on the right side of HMRC and help you keep more of what you earn.

Click here to book a quick 20-minute call.

Conclusion

YouTubers who earn an income from their channel must register for self-assessment with HMRC, submit an annual self-assessment tax return and pay taxes.

Income tax is charged as a percentage of taxable income earned in the tax year, the rate of which depends on how much you earn. The first £12,570 is your tax-free personal allowance. National Insurance contributions are also due on earnings above the personal allowances.

Although you can do your own tax return, it can be complex, especially if you have multiple income streams. There are hefty fines if you get it wrong, which is why many YouTubers seek advice from a specialist accountant like Capture Accounting. 😊

Frequently asked questions about YouTuber tax

Do YouTubers pay taxes on gifts?

It all depends on the type, value and purpose of the gift. If the gift can be construed as payment in kind for any service rendered, e.g. for promotional purposes, then it is subject to tax. Read our blog on whether influencers pay tax on gifts.

What can I write off as a YouTuber?

When we say write-off, we mean tax deductibles or expenses – things that reduce the amount of tax you pay. You can write off any cost that was 'wholly and exclusively' incurred for the purpose of your business, e.g. equipment. These are known as allowable expenses.

There are very strict rules on what you can and can't claim, and HMRC may challenge you if you claim expenses that are not allowable. Always keep business receipts incurred for any business expenses so you can prove what the cost was for if HMRC asks for evidence. See our blog on influencer expenses for more information.

How do YouTubers get paid?

To start getting paid, all YouTubers must first join the YouTube partner program to enable them to monetise their videos through Google Adsense. 

For YouTube channels with a high number of followers and members, creators can potentially charge a fee from advertisers to promote on their channel.

YouTube gives them 55% of the revenue generated and retains 45% for themselves.

Here are some other examples of how YouTubers make money:

• Brand Sponsorship: A brand sponsors an influencer to advertise their goods or services in front of the influencer’s massive audience. 
  
  
• Channel Memberships: YouTubers with a loyal audience can have their fans subscribe to membership programs where they get bonus content for a specified fee.
  
  
• Merchandise Sales: YouTubers have the option to sell their customised merchandise to their viewing audience on YouTube. Items like t-shirts, face caps, bags, lipsticks, fashion kits etc are usually sold by a lot of influencers to their audience on YouTube.