Accounting for Gamers, 5 things you didn’t know but need to
There are many moving parts to running a successful gaming or streaming business. There’s a lot to keep track of when generating income. So it is easy to overlook one of the most important aspects of any business, accounting.
Gaming businesses can be a bit different from traditional businesses. We’ve put together this guide to help you understand the ins and outs of accounting for gamers. Especially if you have been generating cash for a while without realising your sideline could be a proper business.
You are skilled in online gaming, but what about accounts?
As a gamer, you are probably already well-versed in the online world. However, you may not realise how much accounting is done online through cloud-based apps. It is essential to understand that the accounting world has progressed since the days of ledgers and quills. It is also essential to understand that legislation around what you can and can’t do changes over time to accommodate new industries. Gamers, streamers and bloggers are amongst the latest wave of serious businesses and have their own unique set of rules when it comes to tax implications.
We have seen our clients grow substantially over the past couple of years. From part-time bedroom streamers to earning some serious cash, they can now set themselves up for the future. Imagine being able to use what you earn today to buy a house .. !
Typically there are two types of income that you can receive as a gamer: earned income and passive income.
Earned income is money you receive for services rendered, such as game coaching or professional tournaments.
Passive income is money you receive without doing this type of work, such as through sponsorships or streaming advertisements.
Both earned and passive income is subject to taxation. However, there are some deductions that you can take advantage of. For example, you can deduct your travel expenses if you travel to compete in tournaments. You can also deduct the cost of your gaming equipment and software. Yes, that is right, you can offset the cost of that brand new gaming chair as well as your microphone, decorative lights, ring light, software, PC and anything else that you use to create content and run your legitimate gaming business.
When filing your taxes, it is important to keep track of all of your income and expenses. You can use accounting software to help you keep track of everything. It doesn’t have to be complicated, in fact, it can be really easy.
Be sure to keep receipts and invoices for all of your transactions to document everything come tax time properly.
Set up a separate bank account for your gaming income
As a dedicated gamer, you know that your gaming hobby can get expensive. Between the cost of games, hardware, and accessories, it’s not uncommon to spend thousands of pounds on your passion.
And you now know there’s a way to offset some of those costs! By setting up separate bank accounts for your gaming expenses, you can easily track the transactions and deduct some of those costs come tax time. Most banks now have a direct feed into accounting software which makes the process so much easier than having to look at your bank and reconcile each transaction manually. Which, let’s face it, is an incredibly dull way to spend an afternoon.
Accuracy is the key to being able to keep your tax bills low. Capturing every expense, both large and small.
Create a budget and get paid
If you are serious about turning this into a real business, you must keep one eye on income and the other on the outgoings. Profit is what is left once all of your outgoings have been deducted from your income.
Creating a budget and understanding what happens to your money will help you make the best choices for later down the road. It will also help if you share this with your accountant, as they can advise on the best way to extract money from your business.
It is not as simple as taking what is left over because you might be liable for personal tax, which could be avoided by setting up your company and allocating payments correctly.
Pay your taxes on time
First of all, you may have heard people complaining about paying taxes. But let’s reframe that.
Taxes are a way of contributing to society. It is not the paying of taxes that is the problem; it is the OVER paying of taxes that we need to address. A tax bill simply means you made a profit (congratulations), and HRMC would like to take a percentage of that.
There is also a common misconception that gaming and streaming businesses do not count as they are ‘hobbies’. I am afraid that all income counts. Even selling bits and bobs on eBay counts. HMRC becomes particularly interesting as the income increases. Everyone in the UK has a tax-free allowance; once you earn over this allowance, you will need to pay tax. Not declaring an income can be met with very serious penalties, and yes, jail time is one option; fines are another.
So, with this in mind. Pay your taxes and pay them on time.
Fortunately, there are a few ways to ensure you stay on top of your taxes as a gamer. First, keep track of all the money you earn from gaming. This includes everything from prize money to donations and tips.
Second, set aside some money each month to cover your taxes. This will help you avoid getting hit with a large tax bill at the end of the year. Finally, consider hiring an accountant who specialises in taxes for gamers. They can help you maximize your deductions and stay compliant with the HMRC.
If you are worried about your tax liabilities, act now. Stop reading and book a call.
Save while the going is good
Life would be a dream if it were consistent. But things change, and you never know when the change will come. Accidents happen, life moves on, and suddenly, you facepalm at the amount of cash you squandered.
As a gamer, I can only guess that you will want to make sure that you grab every resource available to you during a game. You have to get it whilst the going is good. The same goes for your finances! By following the tips in this guide, you can ensure that you are accounting for your gaming expenses in the most efficient way possible.
One of the most important things to remember when tracking your gaming expenses is to separate your needs from your wants. This will help you to stay on budget and avoid overspending on unnecessary items.
This might mean you set up a pension (oh, you know you don’t have to be old to have a pension right? You got the memo?). Pensions are offset against your income which reduces your tax bill and helps set you up for retirement. The more you set yourself up, the more flexible your life becomes. You might be able to retire at 40 if you are set up correctly.
Create a system so the admin doesn’t distract
you from playing games
As a gamer, the last thing you want is to be interrupted by the admin when you want to focus on gaming. So it is all the more important to have a system to track your finances and stay organized.
Here are a few tips on how to set up a system that will work for both gamers and accounting professionals:
1. Set up a separate account for your gaming expenses. This will help you keep track of how much you’re spending on games, hardware, and other gaming-related expenses.
2. Make sure to track all of your income and expenses. This includes any money you make from selling in-game items or from streaming your gameplay.
3. Stay organised by keeping your receipts and invoices in one place. This will make it easier to track your spending and spot any potential accounting errors.
4. Use accounting software to automate some tedious tasks associated with bookkeeping. This will free up more time for you to enjoy your favourite games.
By following these tips, you can minimize distractions from the admin while still staying on top of your finances.
If your gaming hobby turns into a gaming business, you must treat it as a business. Gaming is a relatively new business, so not everyone understands the differences between online and traditional businesses. If you want to work with an accountant, ask them if they have other gamers on their books.
Track everything, not just for the HMRC but for you too. The more detailed you are with your expenses, the more you can reduce your tax bill legitimately.
- Use technology to remove some of the stress and boring admin. (honestly, there are tons of apps that will help)
- Pay the HMRC on time. So get organised by putting money away.
- Use this opportunity to set yourself up for the future. You have a good thing going … you can make that good thing last a lifetime!
- Talk to us if you are concerned or excited about the future of your business.
We specialise in gaming, streaming and online businesses.