Tax Law and Affiliate Marketing in the UK
If you're working online in affiliate marketing, then you need to make sure you understand what your tax liabilities are. Tax is quite straight forward and hopefully below will give you a brief overview of what you need to know. Affiliate marketing income taxes are a fact of life, unfortunately! Well, if it really were "free money", we'd all give up the day job!
Just because you earn money online as an affiliate, it doesn't mean it's "free money" that you don't have to pay tax on. Being an affiliate is the same as anybody else who works for themselves, self-employed and working from home.
When you are self-employed, there are two things you need to be aware of. The first is that you will be liable to pay tax on your profits, the second is that you will be liable to pay National Insurance contributions too.
Firstly, you will have to register with Her Majesty's Revenue and Customs (HMRC, that's the Tax Office) to let them know you are now self-employed. HMRC are aware that a lot of people are now working online, in affiliate marketing, selling on eay, etc and even use a software programme called Xenon that performs multiple searches, connecting people together. E.g. in eBay Xenon will scan and find people who are making a lot of transactions; software and systems such as this will become ever-more commonplace in the coming years as they refine how it works and as more data is available online and electronically.
Affiliate marketing income taxes are paid the same as any other business. You are selling the service of helping companies to make sales and income. It's a service business.
If your affiliate business is your only income, then you will be able to use your personal tax allowance against that income, so until you have earnt more than £120/week (for a typical single person's tax code) you won't even start to pay tax. Above your tax free allowance amount, the standard tax bands apply.
If your affiliate business is secondary to your main income, then you will pay tax on all your affiliate earnings at the appropriate rate.
As an affiliate marketer, you have the opportunity to earn a lot of money online, quite easily if you put your mind to it - so get registered today at HMRC and check out what expenses you can legitimately offset against your affiliate income ... after all, it'd be a shame if you found in 1-2 years' time that you are earning big bucks but suddenly back off as you're scared because you didn't register in the early days!
Get a grip of your accounting and tax responsibilities at an early stage, it’s not difficult to do and once you’ve got it clear in your head you can concentrate on earning all that lovely money!
National Insurance Contributions
Under the NI rules, as you are self-employed you will have to pay Class 2 contributions. . If you aren’t earning very much then you can apply for a Certificate of Small Earnings Exception. http://www.hmrc.gov.uk/forms/cf10.pdf Class 2 contributions are approximately £2.40/week and you can pay them quarterly by direct debit. In tax year 2009-2010 Small Earnings were defined as being under £5,075 in that tax year.
If you are successful as an affiliate marketer, then you need to check out your VAT position. Once you’re turning over more than about £82,000 (at the time of writing) in a 12 month period, you’ll have to register for VAT. Once you're earning more than half the current threshold it's a good time to start checking out how VAT works and when you should register.
Check out the VAT rules at http://www.hmrc.gov.uk/vat/start/register/when-to-register.htm
Right from the start you will need to keep accounts, accounts of your costs and accounts of your income. When it comes to the end of the tax year (5th April) you will need to fill out a Self-employed Tax Assessment form and submit it to the Tax Office, along with a cheque for tax on the profit on your affiliate earnings.
Keeping accounts doesn't have to be complex, you could literally keep a book, or a spreadsheet, listing everything you spend for your affiliate business and everything you earn. Alternatively, you might decide to buy some accountacy or book-keeping software to keep it all for you/
You will be able to offset some of your earnings against your expenses, it's best to get advice from the tax office or an accountant as to what is reasonable because some of the amounts you can claim are not set in stone. One of the variables is if you have a broadband connection then how much of the cost of that can be offset will depend on your personal circumstances, business model and costs.
Every affiliate's business will be run differently, so it's a good idea to investigate your particular costs, overheads and expenses allowable as soon as you can.
Allowable Expenses for Affiliates
Allowable expenses for your affiliate business will vary, depending on individual circumstances, but as a rough overview, you might be able to offset the following items against your income:
- If you buy any domain names, or any software for your affiliate business, then these are expenses which you can offset.
- If you purchase any ebooks, or pay for subscriptions to any relevant membership sites, then these are expenses which you can offset.
- If you travel to attend affiliate marketing events, the cost of your travel (and perhaps hotel) can be offset.
- Using your home as an office can add an amount to your allowable expenses too.
There is no definitive list of what is and isn't allowable as an expense - it will change from person to person because it's based on the cost, the reason and other relevant factors. It's something you should really spend some time researching, or make an appointment with your local tax office or an accountant.
Katherine Tyrrell from London on October 05, 2015:
In which case it might very well be advisable to indicate a clear date for the content on the hub and disclaimer on the hub with respect to tax law (i.e. indicate when it was written and the fact it's not been updated for all subsequent changes)
Dedicated Content Curator (author) from United Kingdom on October 05, 2015:
Makingamark - that's because it was written in 2009 :)
Thanks for providing the link to the UK Govt website that covers VAT rules and digital products.
Personally, I don't produce any digital products, so it's not been something I've had to delve into.
Katherine Tyrrell from London on June 16, 2015:
This article totally ignores the recent changes to the VAT rules relating to all digital supplies and associated income - See
Fabnomics on December 28, 2011:
Great article thanks
Jhon on April 12, 2011:
Thanks for creating this helpful hub(UK Tax and Affiliate Marketing).
nanilok from London on April 07, 2010:
Very nice article and just what I needed to know!
dany on March 31, 2010:
thanks for this had no idea of the taxes issue
Property-Invest from London on March 19, 2010:
Thanks for the super hub Earner! Many affiliate marketers forget to cost in their own labour time, this has to be factored in too as an expense. You can't work for free. Super tips!
Darren on March 11, 2010:
If I live abroad, can I still pay UK tax?. I don't have a UK address anymore and I live in Turkey. However, as I am not a resident here I can't open a business to pay tax. So, it will be great if I can pay my UK tax and use my address here?
Simon Cook from NJ, USA on October 28, 2009:
The same applies to the US - if you earn $600 from an affiliate you have to pay taxes on it - in fact you have to fill out a form with the relevant affiliate company for them to record the details with the IRS...most affiliates make you do this up front these days....good and important information on the hub.
Hello, hello, from London, UK on October 28, 2009:
I was planing to try Allfiliate Marketing and therefore this import information comes just in the right time. Thank you.