Affiliate Marketing Income and Taxes in the UK – What You Need to Know

Making money with affiliate marketing is a great way to earn yourself some extra income, or even as a full time profession. However, let’s not forget about the taxes too. If you are a UK based affiliate, here’s what you need to know about paying taxes on the income you’re earning from affiliate marketing.   

Guide to Taxes from Affiliate Marketing Income in the UK

Self assessment tax returns

If you are employed, Income Tax isn’t something you normally need to think about – it’s deducted automatically from your wages. But if you are earning other income then you need to report this by sending HMRC (HM Revenue and Customs) a tax return form so that they can calculate the amount of tax you need to pay.  

You can find a full list as to who must send a tax return here.

If you are earning money as an affiliate, then you will most likely need to fill in a self-assessment. If you earned money from a very small number of trades, e.g. you sold a website and got a £500 one time payment, then you can simply fill the self assessment.

But, if you want to offset costs like hosting, domain, content outsourcing, then you will need to register as self employed first.

How do you know if you are classed as self employed?

Most affiliates will be classed as self employed – even if you still have another job working for someone else.

This page explains who is considered self-employed.

Here you will notice that if you “earn commission from selling goods for other people”, then you are classed as a trader, which also means you are classed as self employed.  

So if you haven’t already, your first step would be to register as self-employed. That doesn’t mean you need to quit your day job; it simply sets you up legally as person who can do business, including all the typical accounting principles like profit/loss calculations, allowances and such.

Allowable expenses for the self-employed

If you are self-employed, you are allowed to deduct some of the costs of running your business from your taxable profit. This means you will not pay tax on these expenses. For example, office costs (such as phone bills) and financial costs (such as insurance). These are known as allowable expenses.

Details on costs you can claim as allowable expenses if you are self employed can be found here.   

Calculating your business costs using simplified expenses

There are two principles you can apply to your business accounting – usual accounting and a simplified expense approach.

Simplified expenses are an easier way of calculating your business costs using flat rates instead of your actual business costs.  

This page explains more about simplified expenses and how to use them.

This is particularly handy if you are working from home or rent an office. An example is electricity use when working from home. If your house has four rooms and you use one room solely as office then you can use the simplified approach to divide the electricity bill equally between the four rooms. So if it’s £400 a year you could assume that it is £100 per year in electricity for your home office. You can then claim this as allowed expense from your earnings.

Alternatively, if you use that room only one day per week, then the allowance should be 1/7 of the £100, making it £14.29.

You don’t have to use the simplified expenses method, but in some instances it is worth doing. In some you might just focus on actual expenses like hosting, content, SEO tool subscriptions, programmer or designer fees etc.

In all instances, make sure you keep detailed records of your expenses and income.

A good idea would be to set up a separate account and payment card with which you can receive your commissions as well as pay for services from your self-employed activity without making a big mess in your bank statements.

A simple one year affiliate business income/expenses example

Costs:

• Hosting – £100 (for entire year)
• 2 domains £20 (for entire year)
• Programmer setting up your website £250
• Custom logo design £30
• Outsourcing content articles: £500

Income:

• Affiliate commissions: £5000
• Selling a banner ad: £50

 

Total Costs: £900

Total Income: £5050

Profit/Loss: £4150 (profit)

This profit is the amount you would report to HMRC when filling out your self assessment form. HMRC then will then calculate the tax you will need to pay.

However, to be 100% sure, it is advised to use a qualified accountant to fill these calculations out and submit your tax return for you. Often they will suggest ways you can save or optimise taxes based on your circumstances. E.g. they can point out any unclaimed allowance you have overlooked etc.

Submitting your tax return

The easiest way to send your tax return is by using the HMRC online tax return service. You’ll need a user ID and password to access this service, but you will receive these when register for your self assessment.  

The UK tax year runs from 6th April to 5th April the following year. Make sure you you don’t miss the deadlines, or you will get penalty charges.

You can find details of the deadlines here.

If this is all new to you, don’t panic and don’t worry. All the links in this article take you to the official Gov.co.uk site which explains in a very clear and simple to understand exactly what you need to do and how to do it. There is a page full of helpful links here.

But again, it’s always recommended to get professional advice from an accountant to help you navigate the ins and outs of accounting for the self employed!

 

Please note: this article provides advice for UK affiliates only. If you are not a resident of the UK, please seek advice with your local accounting specialists on declaring your affiliate income.