You are a self-employed individual in this scenario, which essentially means that you must pay National Insurance contributions and other taxes on the profit you make.
We will explore the potential tax liabilities on affiliate marketing revenue in this blog article so that you can better understand the tax implications of being an affiliate marketer. This will help you manage your profits and reduce your tax burden in the long run.
What is Affiliate Marketing?
Affiliate money is generated through an affiliate programme. The simplest way to describe the affiliate programme is to explain that you are compensated for referring people. You list the goods or service on your website, and you get paid a portion when a customer purchases it. A commission payment is another term for referral revenue.
By offering online referrals, you might start a small business advertising the products of other companies. You don't sell the things yourself; instead, you recommend buyers to the vendor. Every customer you bring to the selling company's website earns you money.
How are those who earn an income from Affiliate Marketing identified and categorised?
Due to the fact that all affiliate marketers are paid a commission, the law and the UK government classify them as traders. For instance, if you earn any profits from affiliate marketing and still have a job, you'll still be categorised as a trader, and you'll have to pay affiliate income tax by filling out a self-assessment form.
How do you pay tax on Affiliate marketing income?
Almost every nation has a taxation system for businesses, which includes affiliates who sell products on the internet. With this in mind, let's walk through how to pay your taxes correctly:
- You will not have to pay affiliate marketing tax on the total amount you earn if you are self-employed and your sole source of income is affiliate marketing. As a result, you will not be compelled to pay tax until you make £120 each week. The free allowance zone is £120 per week; anything over that will be subject to taxation at the current rates.
- If you work and make money via affiliate marketing, you must pay affiliate marketing tax on the total amount. You'll have to register with HMRC (HM Revenue & Customs) and figure out how much money you owe the government.
- If you earned more than £85,000 in the previous 12 months, you must register for VAT as well.
Are there any ‘Allowable Expenses’ for those who earn an income from Affiliate Marketing?
Allowable business expenses are non-taxable business expenses and there are some expenses that you will need to run your business if you are categorised as a trader or self-employed individual. These expenses might include phone bills, website maintenance, or any other fees. You don't have to pay taxes on such expenses because they are deducted from earnings but you will have to pay taxes on the remaining profit.
However, affiliate marketers should keep in mind that there is no comprehensive list of acceptable expenses. Individuals that participate in affiliate marketing will incur varying charges, which will be determined by the purpose for participation and the type of business.
As an affiliate marketer, here are some of the allowable expenses that you do not have to pay taxes on:
- The cost of acquiring a domain name can be deducted;
- Even if you purchase memberships or e-books related to your site or work, they are permissible;
- If you travel for affiliate marketing offers, your travel expenses will be covered as well;
- Using your house as an office might increase your permissible costs by a certain amount.
Because tax rules and regulations are susceptible to change at any time, they can be intimidating and perplexing at times. Running a business and staying on top of your accounting responsibilities may be challenging and daunting, but at Persona Finance, we strive to make it as simple as possible.
We provide a variety of critical accounting services, ranging from bookkeeping to keeping your accounts up to date. We are committed to handling your tax requirements so that you can focus on what you do best: running your business.
Please contact Persona Finance at [firstname.lastname@example.org] for additional information on how we can provide even more value to your company.