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Need some Kickstarter Guidance!

I am a total newbie when it comes to taxes… They’re something weird for me. I have a bunch of questions, regarding how taxes are handled, and how the overall money part of kickstarter works. Here we go!

  1. I’ve heard, that the money you owe to Epic Games for using Unreal Engine is 5% of the value of the game. Even if you have a reward tier of £100 - if your game is worth £20 of those £100, you pay 5% of those £20. Is that true?
  2. I’m based in the UK, so UK tax laws apply. I am not listed as a sole-trader/company/anything. I’ve been working part time for a company so far, which makes me ‘employed’. Must I declare that I’m ‘self-employed’ for the money from kickstarter? If so, where?!
  3. Can I make deductions from those income taxes? Basically, the system works like this here : Everything you earn above £11,000 for the year is taxed at 20%. If, let’s say, I make £20,000 from kickstarter, and I declare that I’m buying licenses for £5000 and a new computer for £2000, does that mean that I’ve only made £13,000? If so, I have to pay 20% only on the £2000 difference, correct?
  4. Let’s say I’ve earned £4000 on my ‘employed’ work this year. Does that count for the £11000 minimum for self-employed people? I mean, now when I switch to self-employed, do I start from £4000 or from 0?
  5. Do I have to pay VAT on kickstarter? If so, based on what is it calculated? (the whole kickstarter pledge or just the value of the game, like Epic Games do)
  6. What steps can I take in advance to make everything easier and to not get into trouble?

Thanks!

Best steps and what we did.

Find a business legal advisor company that has both lawyers and tax accountants and pay them to file the company paperwork for you and structure it in the best way for you so that you pay the least in taxes. Then when it’s time to do your taxes have the same service that set the whole thing up for you do them as well as guide you on what deductions to take and help you keeping records of those items.

I don’t think anybody here is qualified to answer your questions about UK tax laws; I would consult someone who actually advises in that field because it is not necessarily simple.

Get an accountant to look over your tax situation, it will be so much clearer talking face to face with some rather than some random message board. I’ve not been an accountant for 10 years so this could be well off, I can’t stress enough that if you are completely serious about using kickstarter to be part of your income you will need some advice from a professional. Also unless you have a serious demo/video to show on kickstarter I wouldn’t even bother until you have a prototype and some simple gameplay. Kickstarter is notoriously hard to promote newbie game developers, hell even experienced studios fail every week to get kickstarted.

I understand that it’s difficult on kickstarter… I’ve got a demo for my game, but I’m trying to plan ahead what to do and how much will I lose in taxes. I spoke with an accountant today and she had no idea how kickstarter even works… Anyone you guys can recommend? (London)

If you’re not US based, VAT may in fact be the least of your worries…
Use of Epic / Kickstarter / Steam means crossing international borders.
Indie game devs don’t often make a whole lot, but complexity is high:
Royalties / Corp vs. Indiv tax / double taxation / currency moves etc…

Try and find an international law firm, rather than rely on accountants.
While most accountants are reasonably well versed in local taxes etc.
Too many are behind the curve regarding gig economy / digital goods.
Even the big-four may offer bad advice that could lead to penalties…

Its best to talk to devs who’ve already walked the path and lost out.
For instance @Burnz has talked about offering services in this area…

I’m a limited company in the UK, so I know the answer to a lot of your questions, but certain things only apply in certain situations, so you need to speak to an accountant. That really is the first thing you have to do. Good luck!

To 1) It’s 5% of the Gross Revenue. So if your game sells on Steam for 20$ and you sold it 5 times, which equals 100$ you will pay Epic 5$. Doesn’t matter how much taxes you pay or what your publisher takes. So this can turn easily to turn to rather 15-20% of your profit. (Steam 30%, US Tax (5-30%), Corporate Tax 30%, Private Tax 25%)
To 2) No, not only UK Law applies. US Law applies as well as Valve is an US Corporation. You should check if there is a double-taxation treaty between the US and the UK - i think there is.
To 3) Speak to an accountant in the UK to verify how your local tax system works.
To 4) Same as 3.

To 6) Find a publisher who takes care of everything. I for example charge 12.5% for publishing services but reduce your total tax globally to 5% through a corporate setup i established after i ran exactly into the same problem. So i’ll save you 12.5%, take the tax issue away and do publishing/marketing work (plus you get access to 40 million YouTube subscribers by Influencer Marketing Contacts). There are quite a few companies out there offering similar services. Make sure they not only give you marketing but help you on the tax issue as well - that way you don’t waste revenue by outsourcing.

I thought you start paying epic after you make $100k annually?

Oh you wish. You pay Epic after you made more than 3000$. So if your game sold for 10.000$ on Steam it’s 5% of 7000$, so it’s 350$.

Gross Revenue 10000$ - 30% (Steam)
Revenue Pre-Tax 7000$ - 30% (Corp. Tax)
Net Revenue 4900$ - 350$
Net Profit 4550$

If you have additional costs for marketing/accounting/staff these 5% equal rather 15 - 20% of your profit.

Taxes, I imagine, are the biggest hurdle. I’d need to know this as well, so subbed!