Paying Taxes on TikTok Earnings: Shop, Affiliates and Sponsorships Explained

If you’re a TikTok creator in the UK, you need to understand how your income from TikTok is taxed, and what you need to consider for different income streams. In this post, we’ll discuss the different types of TikTok earnings you may have, such as TikTok Shop, Affiliates, sponsorships, and more...

Income Sources from TikTok

TikTok Shop has been a revolution within e-commerce, now competing with the likes of Amazon. With TikTok Shop, you can sell physical products from a manufacturer directly through your TikTok videos and live streams, creating a seamless way for followers to shop. 

Affiliate marketing involves promoting other companies’ products, resulting in earning commissions on sales. On TikTok, this may be done through videos or affiliate links on bridge pages for customers to purchase from. With TikTok Shop affiliates, creators and sellers can connect and earn commission on sales from recommendations in videos and live streams.

Sponsorships are significant income sources for many creators on TikTok. This may be a one-off sponsored post or a long-term brand deal. A sponsorship deal could be monetary compensation and the value of products or services received as part of the deal, e.g. receiving a camera for vlogging in exchange for a video review. In this case, both of these would be considered taxable income! 

All these sources would be considered taxable, so it's important to keep track of your earnings, agreements, and any expenses you incur. This will ensure you pay the correct amount of tax whilst removing any potential deductions.

Understanding VAT as a TikTok Creator

Value Added Tax (VAT) is important to consider if you’re a growing TikTok creator. If your taxable turnover exceeds £90,000 in a 12-month period, you must register for VAT.

You can also register voluntarily before reaching this threshold, leading to the benefits of reclaiming costs and VAT. If you want to understand your options, contact us to see what’s best for you. 

Depending on who you are trading with and where they are based, you need to consider whether VAT applies to your TikTok income streams. It's important to note that TikTok states they have no responsibility for any of the service supply on their platform.

When it comes to affiliate commissions, you are paid directly by the shop or business, not by TikTok. This means you need to check where each person or shop you promote is based to determine the VAT implications:

• If the shop is UK based, you would need to add VAT at 20% on the affiliate commission earned. (Note: As Tiktok is not set up to add VAT, you’ll have to invoice them separately to charge this)
• However, if the UK-based shop is actually based in China, the commission would be out of scope and no VAT would be applicable.

With affiliate earnings, remember that you are dealing with the shop you are promoting to sell products and receive commission, not with TikTok directly.

VAT treatment can still vary for other TikTok income streams:

• TikTok Shop: If your stock is based in the UK, VAT will apply to goods sold in the UK.
• Sponsorships and brand deals: If the company is UK-based, you'll pay UK VAT, which you will need to add to your invoices.

Speak to an accountant if you need help to get set up with VAT. To understand more about VAT, read our guide to VAT for influencers in the UK.

Should I create a company or stay as a Sole Trader?

As you start earning, you need to register as self-employed with HMRC. Once you continue to grow, you may want to consider creating a company through which you will incur corporation tax of up to 25%. To make it more tax efficient, you can restrict paying yourself through salary and dividends. 

As a sole trader, you are taxed on your profit. As your income continues to grow, you will move into a higher tax bracket. For example, once you earn above £50,270 you will go into the higher tax bracket of 40%. To help you decide whether or not to stay as a sole trader, read our blog post for a detailed comparison.

Once you start trading, you must notify HMRC within 30 days. You must also complete a self-assessment tax return, which must be filed by 31 January of the following year. If you do not do these, you could be liable for penalties. To understand more about completing a self-assessment tax return, read our blog post on what you need to keep in mind. 

Conclusion

As a growing TikTok creator, managing your finances and taxes certainly isn’t as exciting, but important to ensure you continue to keep records on your way to achieving your goals. 

Reach out to Capture Accounting if you need any help. We work with many leading influencers, so we’re well aware of how your business works. Whether you need business advice or assistance with your finances, reach out to us to discuss how we can support your business.