The Tax man cometh !!

Found this post on www.pcadvisor.co.uk.

Seems Mr Brown has decided to creep up on us in our Second lives as well as our Rl !!

August 28, 2007

Watch out online communities and all you avatars out there, the taxman is after you.

Rumours persist that the taxman has created several characters in Second Life who are spying on possible tax evaders – those people who don't declare the money they make within the online 3D world.

This follows earlier news that online gamers and community dwellers are on the taxman's hit list. And it's not just real-money profits being spied on. The Revenue said it will target even virtual profits: “Even if there is no cash transaction you could still be taxed on the profit or gain. The virtual aspect is a red herring. If someone is running a business, then they are required to register with us and pay tax on that business.”

Tax inspectors are using Xenon, a new high-tech snooper computer system, to scan the site, which has 35,000 regular users in the UK. Xenon is also being used to identify people making money from eBay and other auction sites.

According to The Sunday Times, more than 13,000 people now make some sort of a living from Second Life. In July, 145 players earned more than $5,000 (£2,480) a month on the site, up from 116 in February. A further 5,384 earned $100 or more.

Accountants believe that people start making dough on Second Life as a bit of fun, so are unaware that tax is due.

The Revenue told the newspaper: “Our primary target lies with traders who are running a business on Second Life. The same tax rules apply to Internet trading as to any other form of trading and our compliance approach remains the same.”

Players have to use “Linden dollars” to buy and sell within the game. These can be converted to real cash using a special exchange, enabling individuals to make an actual profit.

Last year, reports the Sunday Times, Ailin Graef created the virtual property magnate Anshe Chung, who became the first person to have made more than $1m through the game.

Users of other online games, such as Entropia Universe, are also in the Revenue’s sights. Entropia is about to launch a cash card enabling users to convert virtual dollars into real ones at high-street cash machines or anywhere that takes Mastercard.

cool. maybe i can write off tier as a tax deduction then

Thats what I waould assume... If they can tax my virtual profit, then I can deduct my virtual expenses. And of course they will have to take their payment in $L.

This sounds a bit unlikely to me. Look at how hard a time someone has locating an IP theft. Imagine how hard it would be to determine what is 'profit', no less who is actually making it.

Wonder if those lovely people at LL would be willing to provide a virtual off shore tax haven for us???

This is rediculous, until you cash your money out of SL then it isn't monetary profit. You could run a business in SL and never take anything out, just use it as a game to buy nicer things for yourself. How stupid is it going to be having to put all your sales and expenses in L$ for the taxman?

Expenses this month:
1 x new tail @ 200L
1 x pair of ears @ 250L
1 x dance script @ 750L
5 x pose balls @ 5000L



Would they decide that things you buy for your own enjoyment in game aren't tax deductable? In that case it would cost you more than you make.

I wonder how many people are making a 'profit' big enough to warrent the government spending huge sums looking for them? Judging by the numbers they give, those making $100 a month, by the time you deduct internet expenses and electricity, there wont be much left for the tax man.

hahahahaha

Sorry just laughing to myself..... Gordon has been in power for about a month .. and its like QUICK TAX SL...

In reality, ANYTHING can be taxed due to its worth, can you imagine there being a national censes like the dooms day book where the "king" i.e Gordon Brown wants to know what you own so that he can tax you on its worth. i.e

knock knock.....
me..... opens doors.... yes
auditor..... hello sir, we have come to value you
me...pardon
auditor... well her magisities government has declaired that items that you own may be sold for money that you wouldnt declare therefor eventhough you have paid income tax on your earnings that you used to purchase the item, and tax on your savings while its in the bank... and VAT on the item when you purchased it, we have now decided that your items still have value therefor this TV sir.... how much did it cost...

me.... £600 why

Auditor ... ahhh well we shall tax you on that at 10%pa..

me... hun ... what

Auditor.... well sir , that is an assett and as such has value to the goverment.



In reality, I play SL as a game, yes that money COULD be turned into real money BUT, where did the lindens come from that I have spent, or maybe they will start taxing it as a taxible service. And yes.. if Mr Brown decides that you are running a COMPANY in SL, you would have to earn a BLOOOOOOODY lot for it to be ligitimate..

and yes you would be able to tax deduct the following.

Tier - Business expense like land rent IRL
Membership - Business licence to operate in world
Land Purchases - Business expense
Broadband Access - Business Expense, unable to work without it
Computer - Business Expense (obvious)
Software licences for Photoshop and Xp etc... - Tools of operation

All this becasue Mr Brown BELIEVES we are all sat raking in the money from SL, Yes i have some in world money... a fair bit., and some in world assets..BUT in order to comply then Mr Brown would have to DEMAND from LL information whch isnt legal in the UK due to the data protection and privicy of information act. Also Linden Labs would have to operate in a TOTALLY different way as they would then be accountable for things like inventory loss, due to the UK goverment deaming that so called inventory as assets and therefor taxible, as the holders of the inventory LL would be removing reveniew from the UK government.

All seems a little odd doesnt it, What Gordon Brown is looking for is the Dot Com SL millionaires, and you are still allowed to have a cerain amount of income BEFORE tax, if you are CREAMING it in SL... then to be honest..... all the above applies, to the most part .. folk like me or Denise.... are lucky to break even, never mind make a profit, my expenses in SL are all to the bennefit of the game and unfortunately as SL isnt a one time payment like a normal game its pretty hard to tax outside taxing the conversation back into RL money, but taxingin it as a business or a going concern is somewhat drenched in political, financial and admistritive nightmares. The ability to Right off pretty much your whole computer as a business expense would also be a big problem, people would need to hire accountants to do thier tax returns from SL and there for also able to right off that cost against the goverment..... in a nutshell the government would end up payin you to play SL. Like anything.... and HAS been on E-Bay for quite a while, never mind this new fangled system.... if you have LARGE amounts of money flooding into your bank acocunt.... the department of revenew and taxes WILL KNOW!!!!!! and will be asking why, but in essence they have heard of the Anshe Chung situation and feel that SL is a big money tree waiting to be picked by the government, and we all sat here with millions in assetts, but as like most governments they dont understand ... LL have declaired that Lindens have no value and Assets dont exists.... as they own the company and its down to them what there "bits" are worth, how can Mr Brown or in deed ANY goverment tax you on a non existant commodity. Again LL would have to admit that Lindens have value and that your inventory DOES exist and IS accountable for its loss.

All very messy........ and in my opinion, would the government make any money form it, Well at £2 for L$1000 lindens, a civil servent or computer system would cost 10000 that, for the very few people who actually make anything in SL. Of course me being a RL payer of tax.... I pay the UK Tax man a BLOOOOOOODY lot of money per month, if I gave up work to play SL an income, it would never replace my current tax payments..... so no, it would be cost prohibitive, and as for some fancy computer...... are we gonna start seeing GOVBOTS floats arround SL....... saying... CALLING ALL BRITS....>CALLING ALL BRITS..... are you a brit .... what do you earn ... whats your RL name and address etc.
All very pathetic for a "fist full of lindens", and certainly with SL being free.... doesnt stop people renting land.... selling stuff and using a differnet credit card etc.... moving money arround.
If LL cant even stop fraud..... or theft of lindens... what the HELL chance does it have at enabling tax payments for stuff that only exists in a non existant world.

P>S. /// morning Denise *girn*

Marty

Um I agree with paying taxes on your profits, but ONLY if you cash out. If you dont trade in the $L for RL cash then its only a fake inworld profit, they want tax on our linden dollars? wtf?

Maybe im misunderstanding this part:

“Even if there is no cash transaction you could still be taxed on the profit or gain. " Wouldnt that be $L?

You can make up to £15k turnover (in the UK) on a 'self-employed' business before you have to have detailed accounts to provide on your Tax Return. Up to £15k, you just put the totals, i.e. Total income & Total Expenditure (costs). Any resulting profit will be taxed at the usual rate (unless it takes you into the next tax bracket

Expenditure to run a business includes infrastructure and setup costs - so, from my POV, that includes the money I spend on Premium fees and Tier. Most businesses will take a while before they turn a profit, so those losses can be offset against any profits made later.

The way I'm looking at it, I'm only due Tax if I'm taking money out of Paypal instead of putting it in...

*Please note - I'm not an accountant! So all the usual caveats apply...

Makes no difference whether LL say L$ have value, if HMRC say it does then they'll tax you on it. Up to you to fight it, but frankly, as a lawyer (although not a tax specialist), it was obvious to me the first time I read it that LL's position is probably wrong.

And a decision by the British taxman that L$ have value would not in any way bind LL to pay for lost inventory. All it might do is open up the possibility of insurance policies to cover against the risk of losing inventory.

The reality of course is that this is a non-story. The Govt have realised that is possible to make money in SL, earned income is taxable, and therefore they are looking into it. They will quickly realise that for 99% of people it isn't worth the effort of enforcement. For the 1% who do make real money, I see no reason why they should not be taxed on their profit, I pay taxes on my wages, and would expect to do so if I made any money here (which I don't in case any tax inspectors are reading).

EDIT: It would be very hard to tax L$ in game, rather than £ cashed out, simply because until it's cashed out, it is at least arguable that the money has been earned in the US, is still held in the US, and is accordingly taxable by the US. I think the UK taxman could only really tax money taken out of the game.

also note ....... that the

"According to The Sunday Times, more than 13,000 people now make some sort of a living from Second Life. In July, 145 players earned more than $5,000 (£2,480) a month on the site, up from 116 in February. A further 5,384 earned $100 or more"

Is in dollars, fuck me if I earnt nearly £3000 a month in SL, I would be HAPPY to pay tax on it as I would give up my job as it would pay more than I currently earn in fact nearly double after taxes, plus ...do what... scan what ..... hmmmmmm so the UK have intergrated systems with Linden Labs now do they ... errrrrr no.... at best they proberly have a few fraud officers jumping arorund SL, bloody hell you cant find places at the best of times never mind finding the following

Who are you.....
Where do you live.....
How much do you earn in SL....
Hav eyou any assetss.......

also note the begining of the article

"Rumours persist that the taxman has created several characters in Second Life who are spying on possible tax evaders – those people who don't declare the money they make within the online 3D world. "

RUMOURS PERSIST!!!!!!!!!

I tend to hold with you on that Wulfric
If I earnt enought to be taxable..... then I should be taxed, but I still stand by that in order to be taxible and if the Gov decide that im running a business I want to right off my expenses or else I would be running a business at HUGE losses due to cost of electricty broadband etc..... we really are talking Anshe territory here .... and not the likes of 99.9% of UK players

If SL profits are to be taxed they will obviously be taxed on the same basis as any other business. It would require primary legislation for you to be taxed without deduction of expenses/running costs.

In addition to the cost of buying/making textures etc, paying employees in SL, tier/subscription fees, ISP costs, electricity, PC that have previously been identified, it might even be possible to offset parts of housing costs/Council Tax if you can show that part of your home is effectively business premises since it is solely used for playing SL. If you have had to replace the chair you sit on to play SL because you are spending 10-12 hours a day in it, that could also be a legitimate business expense. Bought a new digital camera to take better photos for making textures? - legitimate business expense.

We could go on and on picking up on things that might, depending on the individual case, be deductible, but the bottom line is that most people do not make enough money here to be worth the cost of HMRC assessing them.

Sound like the best reason to ban bots yet.

Well business is business whatever form it takes.

Before we set up our business we put all the usual elements in place. Cashflow forecasters, accounts to handle all the money in and out, transaction reports downloaded and saved to serveral locations. Links through our business spreadsheets, payments for all 'ingame' and out of game expenditures etc etc... All our clients and contractors/employees submit invoices ingame before they are paid, using the contract asigned codes to link the accounts, transaction copies issued to clients when they make a payment, for their records etc.. Its a no brainer.

I could see this coming and it is, no cold shower that it has. Anyone now fearing the sky is falling, should have perhaps evaluated whether this platform is just 'a game' or a legit way of making money. Waiting until you get a tax mans demand letter arrive on your doorstep and then try and knee jerk the whole thing, is simply a fools paradise.

A basic accountant that would simply have to compile the information neatly supplied to them for a tax submission, costs me around £50 a year, and I even claim that as an expenditure. The only grey area, is when the taxman states a deduction for potential playtime, against expenses.. easily overcome when the value is considered that of a happy meal against the turnover.

The thought of an inland revenue person flying round SL to gain information that could be used for tax assessment, is amusing at best.. you would spot them a mile away in their bowler hats and newbie skins.. lol.. (j/k), they simply gain the transaction reports directly from LL of any UK resident.

Imagine that, and around the same time the Verification Scheme gets implemented.....

Conspiracy theroist!

like you AWM, I already keep these kind of records for the time if/when our business starts making a rl profit. If we cashed out right now, then yes we would have a nice little sum of money, but currently we plough everything back into the business. We don't even use any money from sales to pay our tier fees yet, although that time is not far off. When we first joined sl December 2006 it was just a way of doing something together which we both enjoyed and utilised some of the skills we possessed. We did not expect our business to take off in the way it has, but being an accountant myself I saw the sense in keeping records of everything right from the start for the time when the tax man started looking closer at platforms like this.If/when we start making rl money out of sl then profits would be declared and we would happily pay tax on them, but I still believe that is quite some time away for us......but if people want to come spend lots of L$ with us and prove me wrong in the near future we won't be complaining.

koffskoffsshenanniganskoffskoffs......

In the United States it is considered income to you when have what's called constructive receipt. That means that if the funds are available to you to draw upon at any time and there are no substantial limitations on your ability to to access those funds, then it is income. Given the liquidity of L$ to US dollars and the proven stability of the L$, I'm guessing the argument that you didn't cash out would be challenged by the IRS. Just because you didn't cash out doesn't mean you aren't easily able to cash out with little to no limitations. That being said, I'm guessing you could find a tax attorney to argue the other side of that coin as well.

"you would spot them a mile away in their bowler hats and newbie skins.. lol.. (j/k), "

of course..

Everyone else, wears tinfoil hats.

and.. where does it end.. if ever.? my personal opinion is, it wont.. everyone wants a piece of pie, even if you are the one eating the last slice.

hmm.. tinfoil hats and pieces of pie... lets have a party... but just be aware, the Spanish Inquisition hasn`t gone away..it is always there, just not expected.

My brother sent me this interesting video on IRS, USA taxes, privacy invasion and human id chip tracking devices.
If you're bored and got few hours the video interesting to watch.
[url
]http://video.google.com/videoplay?docid=-1656880303867390173&q=america+freedom+to+fascism&total=849&start=0&num=10&so=0&type=search&plindex=0
[/url]

What a collosal waste of resources, eh?

I mean Mr. Brown's government will spend more money trying to analyse whether to tax "trading" in SL than they will from the bloody taxes themselves, it seems to me. We're mostly talking about micropayments here -- in the aggregate, there are very, very few people who are making any significant income on SL.

We know that, they don't. hopefully they won't waste too many of our taxes finding out.

It did occur to me that there just might be a very smart, SL-addicted Inspector of Taxes out there somewhere, who's just found out how to get us to pay him to play.

If they wanted to tax profits pre-cashout they would likely use the existing barter laws, which fit the situation in SL quite well.

When people sell things in SL, what are they *really* doing? They're licensing out their IP. Or they're performing a service for someone else. In exchange, they get "barter points" which they can exchange for someone else's IP or services. If no barter points changed hands and I simply exchanged my services for yours (e.g. I write you a script, and you build me a house), then each leg of that exchange would be taxable at fair market value, even if no cash is exchanged. Simply mediating the exchange by the use of barter points does *not* make the exchange somehow not taxable, and each leg of the transaction should still be taxed at fair market value. What is the fair market value? Well, luckily we have a way to figure that out. In SL, barter points can be purchased or redeemed for cash. The value of your services, then, is the cash value of the barter points you received in exchange for those services. That's the value you should be taxed on.

reckon theres a carnivore bot on sl?