The art of creating custom content (“CC”) and modifications (“mods”) to video games has been around for nearly as long as video games themselves. However, more recently there has been a growing number of ways to monetise custom content. For example, you may be creating content through established community creation platforms (such as those offered by Roblox or Bethesda), or creating unofficial content for games and self-publishing online (such as through a Patreon). Regardless, you will need to keep an eye on how much income you have earnt over a tax year. This is because it could be reportable and subject to tax.
What is the minimum tax threshold in the UK?
In the UK, the tax year runs from 6 April to the following 5 April. During this period if your sale receipts exceed £1,000 you could be required to register for self-assessment with HMRC. As a result, you will have to begin filing annual tax returns to report your income. Sale receipts below £1,000 are covered by the Trading Income Allowance. Therefore, it would not usually trigger a requirement to file a self-assessment tax return unless you had other income or gains to report.
It is important to note that the £1,000 threshold is for ‘Sales Receipts’ ONLY. Even if you have made a loss for the tax year, if your total income is more than £1,000 you will still be required to report this to HMRC in your tax return.
Income is usually only taxable if it can be converted to real-world money (or money equivalents). This means that if you are only receiving in-game tokens/items or other virtual currency that can not be taken out of the game, you would not likely need to report this income to HMRC. However, if there is any uncertainty on this it would be best to check with a professional to confirm. For example, web3 games on the blockchain that pay out in crypto assets would usually always still be taxable. On the other hand, receiving gems on a mobile game that can only be spent in a game is less likely to.
Understanding Your Tax Obligations on Overseas Income
When receiving income from corporations outside the UK, you may find that taxes will be withheld and deducted from the proceeds you cash out from your creations. Overseas corporations may also require you to fill out tax forms to establish your tax residency.
For example, Steam and Roblox are both platforms that are run by entities incorporated in the US. As a result, the default position for a US business is to withhold up to 30% of gross business income. UK residents should be entitled to receive this income without any tax deductions. This is due to the double taxation treaty that exists between the US and the UK. These platforms will usually ask for a declaration to be signed to confirm your residency. This is for tax purposes so that amounts can be paid correctly.
Wrongly completed or missing declarations could mean that you will find tax being deducted at source. Whilst it may be possible for the withheld amounts to be reclaimed, this can vary per country. Specifically for the US, it does involve a lengthy process of filing a return with the US tax authorities. You may find the income is also taxable in the UK, leading to a double tax charge.
Our team at StarBox have vast experience in sorting out tax exemption declarations and facilitating successful reclaims of previous-withheld foreign taxes due to incorrect tax declarations. If you would like our assistance, please get in touch with us. Alternatively, you can speak with your regular contact in the team who will be delighted to assist you further.