THE TAX PITFALLS OF BEING AN ADULT ENTERTAINMENT CREATOR
Released On 23rd Feb 2022
The rise of the internet has seen a boom in adult entertainment. What was once perhaps on the fringes of society is now part of many individuals' daily lives and is not as taboo as it once was.
Among the many sites visited by regular users is OnlyFans. Founded by a British businessman in 2016, this subscription model service allows entertainers to charge a regular fee to users to view their content.
In 2021 there were more than 85 million registered users on the site, a figure that is growing by around 500,000 new registrations each day, according to the site.
Some of the top performers, of which there are more than 1.2 million, can make over £70,000 per month! In fact, OnlyFans has paid out more than £2 billion to its creators since its founding.
Like any income, from any job, side hustle or business, this money is taxable. However, several stories have emerged about creators caught out by a sudden investigation or tax bill from HM Revenue & Customs (HMRC).
Business structure
How a creator is taxed will depend on the structure of their operations. Most will effectively operate as self-employed or sole traders and, as such, will be subject to income tax, which they will pay at their marginal rate of 20, 40 or 45 per cent depending on how much they earn.
If they work another job alongside their OnlyFans income, they will need to take this into account when calculating how much tax to pay. Both fan subscriptions and any donations made by users to creators are considered taxable income.
They should benefit from the personal tax allowance of £12,570, but with many creators enjoying large incomes, this can soon be exceeded.
If a creator earns more than £1,000 a year, they need to register with HMRC as self-employed and complete an annual Self-Assessment Tax Return.
If they also regularly use items, services or other resources in the production of their shows, they may be able to reclaim some of the costs as an expense, so detailed records should be kept and submitted to HMRC.
Incorporation
Those earning significant money from OnlyFans may wish to create a limited company based around their brand.
This brings several advantages, not least the ability to withdraw profits in a more tax-efficient manner.
Corporation Tax on a company’s profits are lower than most personal tax rates, plus a creator could pay some of their income to themselves as dividends at a lower rate as well.
However, by incorporating their business, they will need to undertake additional administration under the Companies House rules, including personal details about themselves, the production of annual accounts and Corporation Tax returns.
VAT
If a creator earns more than £85,000 a year, they must register for and record VAT.
If a person has a commercial reason to do so, they can voluntarily VAT register if they earn less than the current threshold of £85,000. The benefit to doing this is the ability to potentially reclaim VAT back on business expenses.
Sites like only fans have the option for a creator to provide a VAT number to help them reclaim VAT. It will even create records and produce a monthly VAT statement to help report this to HMRC.
Remaining compliant
OnlyFans isn’t the only site operating in this way, so performers across all adult websites should make sure that they consider their tax affairs and report income accurately to HMRC to ensure that the correct tax is paid.
If HMRC were to uncover undeclared income, they could begin an investigation which may lead to penalties of up to 200 percent of the tax owed, plus any interest on tax paid late.
If you have previously earned income via adult entertainment platforms that hasn’t been declared, then it may be best to make a voluntary disclosure to HMRC now. This could reduce penalties or prevent a further investigation by the tax authority.
Expert advice
Despite the sometimes ‘casual’ nature of these platforms, those creators operating from them need to think about their income and how it might be taxed.
Even if they do not post regularly or consider these sites a ‘side-hustle’ to their main occupation they should treat their content creation as if they were running a regular business.
HMRC will not accept ignorance of the tax rules as a defence and will seek to recover any taxes that it believes are owed from taxable income.
If you are operating on an adult entertainment website and receive income from it, you should seek professional advice from an accountant.
Not only will they ensure you remain compliant, but they could also help you to structure your business and income in a more tax-efficient manner so that you retain more of what you earn.
To find out more about how Milsted Langdon can assist you with this, please visit www.milstedlangdon.co.uk
