A Little Tax Guidance Please

http://news.independent.co.uk/business/news/article2833957.ece

Now that the UK tax authorities have joined the bandwagon begun by the IRS in investigating revenues earned in SL for the purpose of making tax claims on an individual, I was wondering what rights (as well as obligations) I might have.

For example:

a) If I have a SL wife, can I claim the extra married persons allowances?

b) If I have no home in RL, can I claim the allowances for my virtual home in SL? (No scratch that, they might consider a SL home a second home (in tax parlance) and charge me extra. Oh shit! If the home in SL is copiable, they might charge me for owning an infinite amount of homes. Damn, better not go there)

c) Can I offset all my SL losses against my RL tax bill?

d) As I can fly in SL, will I incur penalties for not having a RL pilot´s license?

e) And finally, can I pay my tax bill in L$ please?


Confused of Watford

I trust you have been paying VAT on anything you have bought in SL and what about Stamp Duty on all those houses you own?

Ok, OK, duly noted.

Now what if go into Edit mode for all the prims in my entire estate (and in my inventory for good measure) and use that Taper property, will that qualify me for Capital Gains Taper Relief or not?

As I have a Private Island Sim, can I claim any offshore allowances?

And as I spend more time in SL than I do in RL, what should I put down as my primary residence now, Barnsley or Bliss?

Ever grateful for your advice

Rock

And since I spend half my time as a life-size otter, and part of the rest as a vampire, do I have to do 3 tax returns? I think only humans pay tax, so the otter's ok? What about the undead? Inheritance tax could be a nightmare, and do I get a coffin allowance?

I have a RL business that is on its way to make a decent profit this year. I intend to use my SL losses (LL tax) to reduce my taxes!!

May as well have fun with my money while I still possess it!

How can "they" actually tax the rather insignificant profits made by avatars or "characters" in what is, essentially, a comic book?

I really hope this thread was done in jest. As it seems right now, only those that make a profit in real cash need to worry about taxes. But since I am not a tax consultant, I would suggest you get your own.

"And since I spend half my time as a life-size otter, and part of the rest as a vampire, do I have to do 3 tax returns? I think only humans pay tax, so the otter's ok? What about the undead? Inheritance tax could be a nightmare, and do I get a coffin allowance?"

LMAO beautiful .. I may need to consider spending more time as a cat.... lol

Hmmm.... according to SL, I live pretty dam well.... an extended beach property with a tiki hut/guest house......my own shop on yet another small parcel. Cripe.. if they look at SL the way the IRS looks at us 'on paper' we're screwed. On the other hand....heeeeeyyy...I still pay the Lindens a monthly fee....and a land tier, which still costs more than I make, so tax wise *puts her hand out* they owe ME! lol

It is not the avatar that would be due to pay tax, but the person at the keyboard. If someone is making a profit , which they withdraw into RL, from their SL activities then I can see no reason why they should not pay tax on that profit in the same way as any other business would. To use the obvious example, why should the person behind Anshe Chung not pay tax on what are, by any standards, large amounts of RL earnings?




Can't speak for Rock, but my contributions certainly weren't serious, although I do think there are serious issues to be addressed about how earnings in a virtual world should be dealt with. Right now there are only a handful of people making serious money here, but, if SL develops the way LL seem to want, that will change and sooner or later these are going to become real issues.

UK Gov .... "thinks" that we are all creaming it in .... and certianly we have had this conversation a few time .... essentially .... your earn in RL ... you pay tax on it. BUT.... its such a new area ... i.e hasnt this sort of thing been going on for ever ... with the like of WoW selling warrior stuff for cash. Again, if its classed as a business in RL then that does put a WHOLE new spin on things with both the IRS and UK Tax man saying that its a taxable source of income then it is really forcing LL to re-evaluate service availability and the nature of SL as a platform. I dodnt even think somebody with good tax law could shake a stick at this as its never been done before...i.e can we claim against our pc as a tax expense or our electricity.
I cant blaim the gov for looking into it..... but we MAY find that labour are GONE before it happens or that its just too little to police below a hundred a month. BUT ....... I should imagine as it isnt PAYE you would have to do tax returns etc .,..... it all sort of makes SL too much of a hasstle to play doesnt it. And if the Content guys like me cant play anymore without mr taxman briething down your kneck for inworld assets then I wouldnt have time to play the game or indeed have time to go and do my real job which i DO pay something like £600 a month in taxes. Maybe the easiest way is to actually look at the whole system and find a way to comply without it being a BIG problem.

If anyone from the tax office is reading this, all my profits go through a guy called MARC BRAGG... please chase him for what is owed.

I love terms such as this

"There is no doubt that HMRC are looking at this and trying to decide how to tackle what could be a considerable loss to the Exchequer,"

Meaning........ we havnt LOST anything...as we havnt had it... but we want it becasue you have it


"The phenomenon of Second Life raises a significant number of tax questions and poses a conundrum for tax authorities worldwide. Will HMRC try to tax profits within the virtual world? Or try to seize the tax that is owed when the profits are taken out and converted into real cash?"

so ..... I will get taxed on my land ...hmmmm sorry I pay tax on my land, can I get taxed twice by LL and HMRC. Items that I have bought in world for "play money" have no value ....is then this no more than "Data Tax" and shouldnbt everyone get "Data Tax" if they have x amount on thier hard drives after all HMRC has deemed that virtual is actually real and as such taxable? Will I get an Inventory tax for my items that have value.



"The game makers boast that there are $1.5m-worth of transactions within the game every day - none of which is subject to any tax."

Errrrrrr .... no looks like the IRS and HMRC have bought into the LL lie, LL classes EVERY transaction to be a financial transfer of money into or out of game or if you move money around but stays in the same place. Its part of the LL sales pitch.... We have seen the system COMPLETELY bolloxed for a whole day and still there was MILLIONS of dollars transfered. We know this becasue we see it.... HMRC see's untaxed money ..... so will I get taxed by the US to .. i.e Wire Tax...and by the Germans...and Brazilians.


"Patrick O'Brien, a spokesman for HMRC said individuals were free to make profits from trading through games such as Second Life, but would have to pay tax on gains which were greater than their annual capital gains allowance of £9,200.

He said anyone who had established a business that made profits through Second Life, however, would be subject to tighter rules."


So does that mean I can earn UPTO £9,200 in world BEFORE I pay any tax on it or do they also take into consideration my RL earnings .... if so as my wife doesnt have a job outside so she owns my shop ..... and these tighter rules.... is that BECASUE its second life .. as you just said that those rules apply ??? do they or dont they? I would have to make £766 a month out of SL to register to pay tax... theres no way im even close to that.... barly 10%. as it would cost me more than that to do my tax returns do I get a rebate for it costing me more to tell you I owe no tax than I earn.

Personally I hate words that sound like something else..... its like saying "Software Piracy has cost Microsoft 5 million a year" ..... No it hasnt ... as those people wouldnt have bought you products anyway and the familiarity generated by the use of your "illegal" products is what makes companies pay THOUSANDS an MILLIONS for licening your products. So you playing SL is stealing from HMRC.... nope its not, you are earning and they arnt...so you arnt stealing you just arnt sharing your efforts to HMRC so they can pay the lazy bastards who dont want to work IRL or send troops to fight wars while the elderly freeze in thier homes while tucking into a can of dogfood for dinner as its cheaper than bread. come on HMRC and IRS .... get your OWN house in order BEFORE chasing the folk who can be BOTHERED.

Ive said it before.... SL for me is fun ... i love it... and yes I like making a few quid, BUT LL cant charge the BIG bucks for land etc if we are all gonna get taxed to hell for it and i think that theres GOT to be a better way to tax those making good money....easily without fuss.

Well there are two glaring errors in that Independent article:


and

$1m = £490m???



As LL have set an exchange rate between L$ and US$, all items bought in world have a real value which can be established. They may not have any market value however if they can't be transferred.



Capital gains tax is different from income tax. Every individual has a CGT allowance of currently £9.200 a year and CGT is only paid on capital gains above that figure. CGT is the tax used on things like property, stocks and shares etc. I would have thought that most content creators would be treated as business owners and therefore subject to income tax. This would/should mean they could offset SL business expenses against any income earned and be taxed on their profits, not necessarily on what they take out of the game.

Your account transaction history would provide most of the information you need, apart from RL expenses such as internet connection fees (which should be partially allowable) and I've read of at least one company that produces an accounting package that analyses the downloadable spreadsheet.

There's no doubt it's going to happen at some point. The VAT issue is even more complicated!

At todays exchange rate that's about right, but don't forget as a business you would be able to offset the commision charge for the transfer.



If anyone is making any money then they would be in business, then they would be paying corporate tax on profits, if the turnover was in excess of 45k (the last time I looked) they would have to register for VAT. They would only pay income tax on personal drawings, ie; money they paid themselves from the business and at the end of the tax year they would file their accounts and then pay 25% (It might be less now depending on turnover) Corporate tax on any profits. But from a small business point of view you would only pay Directors Tax, this is another story but basically you pay less and only pay it every 3 months.



The downloadable spreadsheet is in excel format also and if you use a good accounts package like Sage Plus 50 then this can be converted. Except! Sage cannot deal with the conversion of Lindens you would have to program it or manually do that.
Also, it would be very difficult to use the Account transaction History as proof of purchase cause if does not say what the purchase was for and is not considered as proof of receipt, therefore all purchases would be zero rated as far as VAT was concerned. If you were selling an item and your turnover was in excess of 45k then you would have to charge VAT @17.5% so if you sold a pair of shoes at L$10.00 you would get L$8.50 and the other L$1.50 woiuld be paid to HM Customs.

VAT is not the problem, proof is the problem..recipts are the problem and keeping good accounts is the other.

This will only be dificult for Inland Revenue not HM Customs..

Just to add, there is no proof that you are a business in SL, deisgn, make or build anything, and I am sure also that SL would not release any/or information to UK Authorities, so if you did draw money from SL then have it paid by cheque, not PAY PAL and that can be for consulting which would then be added and/or taxed in accordance with normal Self Employment/Income Tax.

Pay Pal would be the biggest problem for anyone making large amounts of money, as it is widely known as the preferred payment method for purchases over the internet. A cheque on the other hand or direct transfer is considered totally different as long as it can be accompanied with some kind of invoice for services rendered.

I deduct it under Marketing myself.....

As always, the OP should contact a tax proffesional in their area.

Why ask Here?
Why don't you go either to a certified tax preperation expert, or directly to the Current Inland Revenue Tax laws and do a bit of reading and research? Any advice you get here will probably come from somewhere Outside Great Britain, and will be based upon a Rudementary understanding of a Tax structure Dissimilar to the one you are dealing With. It will be somwhere south of Completely Useless.

Angel.

I think you'll find $1m is equivalent to about £490,000 not £490million! lol




Sorry but not true. I assume with your VAT references that you're referring to UK tax; in that case corporation tax is only paid by corporations, i.e. companies, not individuals. It's not compulsory for an individual to incorporate if they're in business. Directors are "special employees" of a company/corporation and their tax situation is much more complex than you're suggesting.

Income tax is not payable on drawings, it's payable on business profits whether they're withdrawn or not.



Unless I'm completely misunderstanding you, many of your statements are very misleading and are not in accordance with current UK Tax or Customs regulations. For example, it makes no difference how you receive the money .. income is income and is taxed in exactly the same way whether it's for services or products supplied and no matter whether you're paid by cheque, bank transfer or Paypal.

I agree with your point about keeping good records. However current EU VAT regulations mean that anyone from the EU buying goods online is supposed to be charged VAT; it makes no difference whether you're buying from an EU or US-based business nor the turnover of the original seller. LL could be forced to administer the collection of VAT from EU account holders as has happened with other third party payment processors (I'm thinking here for example of Clickbank, who are 3rd party vendors of ebooks based in the US).

Ok it's 3am and I'm done here!

For the record, I am a tax accountant in the UK but my comments are intended to be used as a starting point for further research. I would stress that if your earnings from SL are at all material, you should get individual advice from a qualified accountant or tax attorney.

WOW, i thought the US tax code was hard to understand....

LOL.. anyone really concerned whether they are liable to pay tax on 'earnings' in SL when they withdraw 'profits' in their currency... keep all transaction reports... any simple accountant can create a expenditure account from electric bill %'s, even part of your mortgage payments if you have a registered address, % of this and that etc.. will soon draw a negative balance for the average small business in SL.... Now Corporates... thats a totally different story... they may simply offset the whole thing against advertising/research budgets.

I pay £50 a year for an accountant to take our teired transaction excel spreadsheets and where applicable any payments made for L$. I won't tell you what we make from SL.. but I can say, it's harder than you think to reach a taxation threshold (not that I try that hard lol). Also, as my RL wife is a co-owner of the companies in SL, we are able to use up her tax allowances. There will always be exceptions to the rule.. Anche being one...

FYI, the Inland Revenue have been monitoring the likes of eBay for years. Given resources, they are looking mainly for big business, money laundering, those that are claiming benefits for unemployment/disability etc, but making a healthy income via eBay and other website services.

Smartest thing to do, is to offer the information, rather than hide it, or simply brush it off as 'I don't count'.

VAT is a minefield, when you consider some New builds are exempt, some are not etc..(IN RL) thats the beauty of the micro currency.. its worth nothing until exchanged for real currency... trying to persuade your local Customs Officer that the avatar you paid to clean your VR windows shouldn't attract VAT as they we not a European resident.. although in doing so, employing a Euopean Citizen may get you awarded with some grant somewhere.... <phew> lol...