Most people get into Esports while they’re teenagers and dedicate years to training in their favourite game. Unsurprisingly, most gamers didn’t think about paying tax when they’re starting out! However, if you’re earning money from Esports, you will almost certainly have certain accounting responsibilities.
While Esports accounting might be less fun than competing in an LoL or CS:GO competition, it’s still an important part of being a professional gamer. Here is everything you need to know when it comes to Esports tax and accounting.
Challenges of Esports accounting
There’s nothing like receiving your first payment for playing Esports. It’s awesome to get paid for gaming! However, from the day you start earning money you will need to start setting aside a portion of your income for tax – because failing to pay the tax man can leave you in trouble.
For Esports players, figuring out what you owe to the tax authorities can be complex:
- International earnings: Esports players partake in international competitions, which might be taxed in different ways in different countries
- Various income sources: Many pro gamers earn money from a wide range of sources, including sponsorship, Twitch donations, competition winnings, team stipends and so on. Recording all these earnings can be complex
- Complex costs: If you rent offices, buy servers and gaming PCs, and pay your international team a wage, you will have to track all these outgoings to ensure you pay the right tax
All these factors can at first seem pretty daunting. And as your earnings grow, it probably is best to hire an Esports accountant who can give you the best advice for your specific situation. That said, if you’re just starting out, you can do a lot of the essentials yourself.
5 essentials of Esports accounting
At the beginning of your career, accounting for Esports need not be overly complicated. You will probably need to set aside a few hours one day to get set up and organised, but after that it’s reasonably straightforward. The following five Esports accounting essentials will put you on the right path.
Decide on your business structure
Depending on where you live, there are different business structures available. In the UK, you can set yourself up as a Sole Trader, Partnership (you and one other person) or a Limited Company.
Being a Sole Trader is the most straightforward and easiest to do tax for – if you’re earning money on Twitch/YouTube or entering competitions on your own, it’s probably the easiest way to go. You as an individual and the business are legally treated as the same entity, and all the business’s earnings belong to you. If you’re in the UK, you can register here.
On the other hand, if you are running an Esports team you will probably do best to run a Limited Company. A Limited Company is its own legal entity and you then pay yourself a salary and dividends from money the company earns. It’s more complex on the accounting side, but you might end up paying less tax this way. You can learn more here.
Work out when you need to pay tax
Different countries have different processes and timelines for paying tax. In the UK, for example, the tax year runs from 6th April to 5th April the following year. You then need to pay any tax you owe for the previous tax year by 31st January.
To illustrate: Andy started his gaming business in June 2018 and began earning right away. At the end of that tax year (April 6th 2018-April 5th 2019) he had earned £20,000. He would then need to report his earnings to HMRC (the UK tax authority) and pay his taxes for 2018-19 by the deadline of 31st January 2020.
Set aside tax from your earnings
If you are self-employed, you won’t get taxed ‘at source’ by your employer. Instead, you need to set aside a portion of everything you earn and pay it to the tax authorities by specific deadlines.
Again, this varies from one country to another, but using England as an example:
- You have a tax-free personal allowance for the first £12,500 you earn
- Basic rate. You pay 20% on all earnings from £12,501 to £50,000
- Higher rate. You pay 40% on earnings from £50,001 to £150,000
- Additional rate. You pay 45% on earnings over £150,000
Don’t forget that you will also have to pay other taxes. In the UK, you will need to pay National Insurance, which adds up to around £95 per week, depending on what you earn. And you might also have to collect VAT if you earn over £85,000.
Now, this might all seem a bit complicated, but as a rule of thumb, setting aside about 25% of any income from gaming will cover most people, at least when you’re starting out.
Learn more: 4 ways to make money in Esports
Record income and expenses
Esports accounting can be a headache because your earnings can be very diverse. You might be earning money from Twitch views, YouTube, sponsors, and receiving winnings from competitions abroad in multiple currencies - or even in Bitcoin. These earnings might come in batches through the month.
You have a legal responsibility to record all these payments. There is software that can do it for you, but it’s often possible to do on a spreadsheet.
You also have to record expenses. This is good because many expenses are ‘tax deductible’ – they will reduce your overall tax bill. Everything you buy for your business is an expense – from your PC to a gaming chair and even part of your internet bill (a full list of allowable expenses can be found here).
It is crucial to keep copies of all receipts, because the tax authorities might demand to see them to make sure you are not exaggerating your outgoings to reduce your tax bill.
Esports bank account
Any self-employed person should have a separate bank account dedicated to their business earnings. If you receive all your income into your regular bank account, it becomes super complicated to work out what money is business money and what is your personal spending.
Many gamers choose Esports friendly bank accounts like Xace, because they give you extra features that match up with the specifics of running a gaming business.
For example, Xace lets you receive payments in multiple currencies at the lowest possible exchange rate. If you were to receive competition winnings in, say, Euros for a tournament in Germany, you would normally need to pay your bank’s expensive foreign exchange fee to turn it into Pounds Sterling. With Xace, this is much cheaper.
Esports accounting as you grow
While anyone can get set up with the basics of Esports accounting, it is often best to work with a specialist accountant as you start earning. They can advise you on anything from choosing the right business structure to deciding on the best country to run your business from. It also takes the headache out of accounting – meaning you can focus more energy on training!
To learn more about money management as a pro gamer, read our Esports banking blog.