While many years ago if you were very good at a video game you just had bragging rights over your friends, now there is the ability to make a living from playing Esports and being the best of the best at games. There are now plenty of opportunities to conquer your preferred sport either individually or as a team.
With this new profession comes a range of tax considerations that you may need to be aware of. You may game from the UK or may even play the odd championship overseas, but nevertheless in each event if you are a UK tax resident you will likely have UK tax reporting obligations.
We have outlined some of the key issues below:
Playing with a team
Individuals will often train and participate in events as part of a team. Any remuneration they receive may be taxed as self-employment or employment income, depending on the contract or practical arrangements.
The tax rules around the classification of employment status are a complex area and have been a target of HMRC in recent years. The main reason to establish your employment status is to determine who is primarily responsible for reporting and paying tax and national insurance to HMRC.
As the success and profile of E-sports continue to grow so does the money brands are willing to pay to players and teams to endorse their products. The usual position is that any money received for sponsorship or endorsements will need to be treated as self-employment income.
Successful teams winning competitions will often get their hands on a substantial prize pot. Esports insider reported the 2022 League of Legends World Championship had an estimated prize pot of $2.23 Million (around £185 million). If this is paid to their team and then handed down to the players then it could be treated as additional employment income (dependent on the contracts in place). If it is paid directly to the players then it will likely be treated as trading/self-employment income.
Extra attention should be given to any prizes earned outside the UK. With gaming companies often hosting events across the world, countries will likely want to deduct withholding tax from any winnings obtained. Typically, this is done before the individual gets their hand on it. The UK have a lot of double tax treaties with different countries. As a result, this could mean tax does not need to be withheld or can be refunded to the taxpayer, but professional advice (such as from our tax experts at Starbox) should be sought to find out your options available.
Personal income – Streaming etc
Individual players can boost their profile by playing esports. Eventually, players can branch off into the more ‘traditional’ income streams from streaming on platforms such as YouTube and Twitch. Streamer ‘Ninja’ started his career in esports and then branched off, acquiring 20+ Million YouTube subscribers and signing multi-million dollar exclusivity deals. Any income received from these sources will need to be recorded and included on their tax return for the year.
Expenses and VAT
When an individual is required to report their earnings as self-employment you can deduct most expenses that are incurred ‘wholly and exclusively’ for the purpose of the trade.
You may also be required to register for UK VAT depending on your level of income, or voluntarily register to reclaim VAT on your purchases (but VAT would then need to be accounted for on sales as well if not exempt).
If you primarily live outside the UK but attend tournaments in the UK you may be subject to pay UK Tax. on any earnings derived from activities in the UK under the UK’s Foreign entertainers and sportsperson rules. There are nuances and specific rules to consider when earning money as an overseas player, these rules will also interact with your local authority taxation rules where you live.
How can we help?
Whether you are competitive gaming, managing your own team or attending events in the UK from overseas, there are various and unique UK tax considerations for each circumstance. HMRC are looking into the online world more than ever. therefore, it is important to be aware of the taxes you would be liable for but also the reliefs available so that you don’t pay more than you need to.
If you are looking for business and tax support in your esports journey, please get in touch with our helpful team of experts at StarBox who are ready to support you.