UK tax system - Info needed

[sker]

To all UK Residents,

How do you all pay taxes on domain earnings ?

do we need to pay taxes for that? ( i know its a silly question but does any one have any other ways to write it off?)

Will the trading platform or escrow serivces report to Inland Revenue about our sales or PPC revenues?

How much tax do we pay for domain names?

i know we pay 30% corporate tax. We pay taxes for real properties depending on years or possesion but how they work it out for domains or websites?

I know our taxmen will comb heaven and earth to tax us but there must be some incentives for innovators/entrepreneurs. They don't stifle innovations,do they?

you can PM me if you got something private to share.

V

 

[aotgroup]

I would also be very interested in any views on this. I am also interested in VAT matters and how this matter would be dealt with say if i purchased a domain from a uk based reseller and then go on to sell the domain to an overseas buying. I have paid the VAt and as im VAT regged in the Uk i need to charge VAT on the Sale, ANy comments appreciated??

 

[SiteBroker]

Yes you must pay tax on any earnings which obviously includes domains and anything else online. Unless your yearly earnings are below £5,000 as you are allowed £5,000 each year tax free money. If you pay £1000 for a domain and sell for £3000 you can write the £1000 of as expenses etc. The only way to get around not paying the tax is do not withdraw the money into a bank account but that will end up making your life tough as without money going into your bank and earnings your going to find it hard getting any loans, mortages, credit cards etc. Are you even tax registered yet?

I know our taxmen will comb heaven and earth to tax us but there must be some incentives for innovators/entrepreneurs. They don't stifle innovations,do they?

Ofcourse they do as these people earn the govertment a hell of alot, Bill Gates pays more tax then most countries are worth
Also remember the more you earn the high % tax you pay in the UK anyway, i pay more then 30% tax, once you earn over £30,000 a year you start paying high tax. The average income here in London is £38,000/year.

 

[cjcjcj]

I'm a Chartered Accountant so I can answer some of your questions. I would suggest that you consulted the Government's Tax website before taking my advice though.

The tax you may pay on your domains could be subject to income tax or Capital Gains Tax depending on your situation. In this sense it is wrong that you will only be taxed when you take the money from your bank: this would apply if you were trading and counted domain sales as your pay/salary, or if you traded under a company name (when by the way you would have to pay corporation tax on any profit too).

Capital Gains tax is worked out on the difference between the price you buy and sell your domain for. You can then apply some allowances and indexation to the left-over to reduce it and pay less tax on it. This means that for small sales, your annual exemption should cover it and hence you have no tax to pay.

However, you should report all of your larger gains to the Inland Revenue through your annual tax return after the year end on April 4th 2007. They will not be able to find out if you have made sales through the companies you trade with unless they dig, and the chances are that you're a small fish and they would have no time to do this. However, technically you should pay your taxes and they will expect them next year, so don't get caught out by spending the tax man's cut before you have to pay it.

Message me if you want some details on rates and calculations done for you.

VAT on foreign sales is very complex and I'll have to research it a little more. Seeing as the majority of domain name sellers are not VAT registered, it is unlikely you will have paid much VAT to claim back; and therefore having to charge VAT on all of your sales may bump your prices too high and put people off.

I'm considering documenting the accounting practice for personal domain sales, corporate sales and corporate financial accounting with regards to domain name assets. Would this be well received?

 

[sker]

Yes you must pay tax on any earnings which obviously includes domains and anything else online. Unless your yearly earnings are below £5,000 as you are allowed £5,000 each year tax free money. If you pay £1000 for a domain and sell for £3000 you can write the £1000 of as expenses etc. The only way to get around not paying the tax is do not withdraw the money into a bank account but that will end up making your life tough as without money going into your bank and earnings your going to find it hard getting any loans, mortages, credit cards etc. Are you even tax registered yet?.

Ohh yeah, i'm already paying my taxes for my regular job i'm doing and its definitely more than GBP 5k.

I'm own no company i'm afraid :hehe:

I'm a Chartered Accountant so I can answer some of your questions. I would suggest that you consulted the Government's Tax website before taking my advice though.

The tax you may pay on your domains could be subject to income tax or Capital Gains Tax depending on your situation. In this sense it is wrong that you will only be taxed when you take the money from your bank: this would apply if you were trading and counted domain sales as your pay/salary, or if you traded under a company name (when by the way you would have to pay corporation tax on any profit too).

Capital Gains tax is worked out on the difference between the price you buy and sell your domain for. You can then apply some allowances and indexation to the left-over to reduce it and pay less tax on it. This means that for small sales, your annual exemption should cover it and hence you have no tax to pay.

However, you should report all of your larger gains to the Inland Revenue through your annual tax return after the year end on April 4th 2007. They will not be able to find out if you have made sales through the companies you trade with unless they dig, and the chances are that you're a small fish and they would have no time to do this. However, technically you should pay your taxes and they will expect them next year, so don't get caught out by spending the tax man's cut before you have to pay it.

Message me if you want some details on rates and calculations done for you.

VAT on foreign sales is very complex and I'll have to research it a little more. Seeing as the majority of domain name sellers are not VAT registered, it is unlikely you will have paid much VAT to claim back; and therefore having to charge VAT on all of your sales may bump your prices too high and put people off.

I'm considering documenting the accounting practice for personal domain sales, corporate sales and corporate financial accounting with regards to domain name assets. Would this be well received?

Well explained.

Ohh yeah, i'm sure there are many UK based domainers would appreciate your knowledge.

About writing off expenses, i've seen post by one my American peer who sold his poker related names, mentioned he wrote off his cable TV expenses because he gained knowledge to acquire those names through cable news & live poker series. I would assume we in the UK have a quite similiar taxation system with the Americans.

PM sent.

V

PM sent. Rep added.

V

 

[cjcjcj]

If you run your domains through a business, and this doesn't have to be a Ltd company, you are legally allowed to off-set chargable expenses against the income you receive.

For example - imagine I was a self employed Designer.

In a year I earned £50,000 in terms of SALE/INCOME (not profit). That money would sit in my business account, but I want to spend it so I withdraw £50,000.
In most cases you can draw that money as salary and pay income tax on it (at rates of up to 40%). For arguements sake you would pay tax of £20,000 and spend £30,000.

But think of it another way. Out of that money I have earned I would have spent money on art materials, a computer and lots of travel to visit clients. If these are seen as allowable expenditure for the business you are in (which the above would be), the company can pay for them before you get paid. If these cost £15,000 in a year it means that £15,000 is removed from the company tax free (in effect) rather than paying you £25,000 to have £10,000 go in tax at 40% just so you can spend the £15,000 on your business costs.

NET EFFECT:
Through business -
£50,000
(less £15,000 EXPENSES)
= £35,000 remaining

Through individual -
£50,000
(less £25,000 paid to me, £10,000 gone in income tax and £15,000 EXPENSES).
= £25,000

Now you will have to pay Corporation tax on what is left in the company, but this is a lower rate than income tax, and don't forget that you will need to be paid less too, as the things you would normally spend money on have been charged to the company but without the income tax removed first.

You are still paying income tax on all money that you spend which is not related to the business, and corporation tax on all profits, but this leaves you with more money!

And hence the Inland Revenue will not allow it unless you are genuinely self employed (ie you can not invoice your work instead of going on the payroll). To get away with charging Cable TV sounds ridiculous, but is not that different to apportioning your home electricity and phone bills for the 8 hours a day which you worked at home, and this is allowed.

Obviously people's circumstances are different, so if you're not sure what to do, ask a tax advisor before ordering Cable TV, or invoicing people; there is an increase in documentation to complete each year for Companies House and the Inland Revenue so be prepared.

 

[namemarket]

Hi cj, What with the very high tax in the UK I am surpised you guys do not move to the Isle of Man or Jersey which I hear are offshore tax havens, and also located very near to the UK.

Also, the thread seems to be about reseller profits, how is UK resident PPC income treated?

Plus, you refer to being taxed on money taken out of the UK bank account but what if you keep the money there and always use a debit card to live on and pay all your bills, does that mean no UK tax?

Why not open a bank acct in a different nation? I know of a well known domainer (not a UK resident but another country) who lives basically 100% from his offshore bank acct debit card where his affiliates use electronic bank transfer to the acct. He pays everything with the off-shore bank debit card including his mortgage payment, car payment, gas and the grocery store too. Is that legal in UK or elsewhere if setup as an offshore registered LLC, just wondering?

 

[sker]

If you run your domains through a business, and this doesn't have to be a Ltd company, you are legally allowed to off-set chargable expenses against the income you receive.

For example - imagine I was a self employed Designer.

In a year I earned £50,000 in terms of SALE/INCOME (not profit). That money would sit in my business account, but I want to spend it so I withdraw £50,000.
In most cases you can draw that money as salary and pay income tax on it (at rates of up to 40%). For arguements sake you would pay tax of £20,000 and spend £30,000.

But think of it another way. Out of that money I have earned I would have spent money on art materials, a computer and lots of travel to visit clients. If these are seen as allowable expenditure for the business you are in (which the above would be), the company can pay for them before you get paid. If these cost £15,000 in a year it means that £15,000 is removed from the company tax free (in effect) rather than paying you £25,000 to have £10,000 go in tax at 40% just so you can spend the £15,000 on your business costs.

NET EFFECT:
Through business -
£50,000
(less £15,000 EXPENSES)
= £35,000 remaining

Through individual -
£50,000
(less £25,000 paid to me, £10,000 gone in income tax and £15,000 EXPENSES).
= £25,000

Now you will have to pay Corporation tax on what is left in the company, but this is a lower rate than income tax, and don't forget that you will need to be paid less too, as the things you would normally spend money on have been charged to the company but without the income tax removed first.

You are still paying income tax on all money that you spend which is not related to the business, and corporation tax on all profits, but this leaves you with more money!

And hence the Inland Revenue will not allow it unless you are genuinely self employed (ie you can not invoice your work instead of going on the payroll). To get away with charging Cable TV sounds ridiculous, but is not that different to apportioning your home electricity and phone bills for the 8 hours a day which you worked at home, and this is allowed.

Obviously people's circumstances are different, so if you're not sure what to do, ask a tax advisor before ordering Cable TV, or invoicing people; there is an increase in documentation to complete each year for Companies House and the Inland Revenue so be prepared.

Perfect but complicated.

To seek an accountant is a good idea.

your insight is very much appreciated.

 

[aotgroup]

thanks CJ for making the subject a little clearer

 

[cjcjcj]

Thanks for your comments. I will get some information online onto my new site within a couple of weeks. I'll then keep it there as a reference for people to refer to.

Hi cj, What with the very high tax in the UK I am surpised you guys do not move to the Isle of Man or Jersey which I hear are offshore tax havens, and also located very near to the UK.

A nice idea, but you'd need a lot of trading to warrent a house move and a change in nationality!

Also, the thread seems to be about reseller profits, how is UK resident PPC income treated?

UK resident PPC income should be treated as income tax for most people and put on your annual tax return. If you have a company set up, like above it will just count as income/sales and can be offset with expenses before Corporation tax is charged.[/QUOTE]

Plus, you refer to being taxed on money taken out of the UK bank account but what if you keep the money there and always use a debit card to live on and pay all your bills, does that mean no UK tax?

No. You are taxed on all of the money earned, whether you take it out of a bank account or not. The only 'slight' exception is if it is in a company bank account, you will only be charged income tax if you draw the money for yourself.

Why not open a bank acct in a different nation? I know of a well known domainer (not a UK resident but another country) who lives basically 100% from his offshore bank acct debit card where his affiliates use electronic bank transfer to the acct. He pays everything with the off-shore bank debit card including his mortgage payment, car payment, gas and the grocery store too. Is that legal in UK or elsewhere if setup as an offshore registered LLC, just wondering?

This is not the same in the UK. You are taxed on your worlwide earnings if you are a UK resident, and your UK earnings if you are in the UK, but from another country. Special circumstances may exist, if you can prove you need to trade in that country - for example, if part of your domaining business was selling .us names and you needed to have a US account for this purpose, you may be allowed.
Generally though, you may have to pay tax in the country you set the account up in, and then again for the Uk Goverment. The double tax you pay can be relieved through Double Taxation Relief.

To get a real tax break you have to become resident in a country with lower tax than the UK. This means living there for a set number of days each year.