You must declare your Google Adsense earnings to HMRC however the amount of tax you pay depends on your personal circumstances and how much you earn from all your sources of income.
Everyone is legally required to declare all their earnings even if they earn below the threshold for paying any tax.
How Do I Declare on My Google Adsense Earnings?
The easiest way to declare your Google Adsense Earnings is to register as Self Employed and send in a Personal Tax Return (also referred to as Self Assessment).
This personal tax return is a form which lets HMRC know how much you have earned and how much tax you need to pay (much like an employer would do if you worked in a job).
The Four Essential Steps of Self Employment:
- Visit the HMRC website and register as Self Employed;
- List out and keep all the receipts from your Google Adsense earnings and expenses;
- Complete a Self Assessment Tax Return before 31 January each year summarising your business income and expenses;
- Pay any Tax and National Insurance due by 31 January each year (and payments on account by 31 January and 31 July each year).
Registering as Self Employed Online with HMRC
The process of registering as Self Employed on the HMRC website can take 10 days to complete. Upon which HMRC will post you a UTR number (Unique Taxpayers Reference). Keep this safe as you will need this code to file your Self Assessment Tax Return.
Your Responsibilities being Self Employed
Self Employed Individuals are responsible for reporting their income to HMRC under Self Assessment by submitting a personal Tax Return by 31 January each year detailing all of your google adsense earnings along with any other earnings (from a salaried job or property rental for example), income tax and national Insurance due, as well as paying any tax you owe.
Your tax return submitted by 31 January covers the previous tax year (a tax year runs from 6 April to 5 April). So for example, your tax return due by 31 January 2018 details your earnings between 6 April 2016 to 5 April 2017 from google adsense as well as any other income you have (such as employment income, rental income, bank interest or dividends).
Payments On Account
Watch out, you are also required to make a payment on account to HMRC by 31 July each year too which is normally 50% of your previous years income tax bill and class 4 national insurance bill, so make sure you budget for this additional payment too.
If you already Submit a Tax Return
It is also worth noting that if you already complete a Self Assessment Tax Return, for example because you collect rental income or have savings interest, that you need to complete a Form CWF1 to notify HMRC that you have a new form of income (in this case self employment) that you need to report to them on. Again, you can do this online here and you will need your Unique Taxpayers Reference.
How to Work Out Your Google Adsense Earnings
When you are self employed the tax you pay is based on the income you make from Google Adsense. Confusingly, income actually means profit – all the money you make less all the costs you have incurred.
Working Out Your Google Adsense Earnings
You can find out your Google Adsense Earning by looking in your Adsense account. A useful report for adding up your earnings is the detailed transaction report, which you can find by going to:
- View Transactions
- Choose Detailed transactions
- Choose Payments
- Select Your Date Range
When you are self employed it is really important to understand which are allowable as they reduce the amount of tax you have to pay. Here are some examples of expenses you may pay for that you could claim against your adsense earnings:
If you use your computer to manage your website and adsense earnings then you can claim for the cost this as an allowable expense.
It is a common to have something, like a laptop, that you use for business and personal reasons. In these types of cases HMRC allows you to only claim for the portion of the item being used for the business. So if for example you use your laptop 60% of the time for your business and the other 40% for personal things like internet shopping, facebook etc then you would only be able to claim for 60% of the cost of the laptop against your taxes.
Website Build, Domain Hosting
Use of Home
If you choose to work from home then there are rules that will allow you to claim an amount for the running costs of doing so from your home as a portion of your household bills such as gas, water, electricity or rent.
Alternatively, HMRC allows you to claim a flat rate of £4 per week for using your home for work purposes and you don’t need to substantiate this claim with receipts.
Any marketing you do (online or offline), paid ads or anyone you pay to help you with your marketing in relation to your website and earning from google adsense is also fully allowable so make sure you download or ask your marketing assistant to send you an invoice before you pay them.
Accounting & Bookkeeping
If you choose to use an accountant to complete your self assessment tax return again their fees will be an allowable expense. Keeping accurate records will definitely help keep their fees down too as well as giving them all the information they need to make sure you receive all the deductions and reliefs to reduce your tax liability.
It is advisable to open a business bank account and keep your business and personal expenditure separate. The bank charges you pay on your business bank account is an allowable expense.
All expenses must be supported by a receipt, so make sure you keep hold of all your paper or emailed receipts. It is also really important to be aware of which expenses are allowable for your business because incorrect claims can result in penalties. If you are unsure, always seek the help of a professional.
Top Tax Tip:
Even if you make a loss you must still register with HMRC and complete a tax return. This may feel onerous, but completing a tax return means you can record all your expenses to create a tax loss. This can then be used against any money you make in future tax years and save you tax at this point.
How Much Tax Will You Pay on Your Adsense Earnings?
As you now know the amount of tax you pay is based on the profit you make from google adsense (all your income less all your allowable expenses).
However the amount of tax that you actually pay is based on your own circumstances and how much you earn in total during a tax year.
Income tax is calculated at different rates according to how much your profits are. So for 2017/2018 the rates are:
|Personal Allowance||0%||Up to £11,500||Up to £11,000|
|Basic rate||20%||£11,501 to £45,000||£11,001 to £43,000|
|Higher rate||40%||£45,001 to £150,000||£43,001 to £150,000|
|Additional rate||45%||over £150,000||over £150,000|
Example of Working Out Tax
Molly has a website with google adsense running but also has a part time job earning £15,000 per year, so has paid tax of £800 through payroll. She is getting ready to submit her tax return for the tax year 2016/2017 which is due by 31 January 2018. She has worked out that her profit from google adsense was £22,000 therefore she will need to pay tax of £4,400.
What Other Tax Must You Pay on Google Adsense Earnings?
Self employed individuals may need to pay Class 2 and Class 4 National Insurance as well as tax. The amount of Class 4 National Insurance you pay is based on your google adsense profits. The current rates are:
|Class||Rates for tax year 2017/2018||Rates for tax year 2016/2017|
|Class 2||£2.85 a week on taxable profits above £6,025||£2.80 a week on taxable profits above £5,965|
|Class 4||9% on profits between £8,164 and £45,000 2% on profits over £45,000||9% on profits between £8,060 and £43,000 2% on profits over £43,000|
In our example above, Molly earned £22,000 therefore would need to pay Class 1 National Insurance of £145.60 and Class 2 National Insurance of £1,254.60.
Molly’s total tax bill is therefore:
- Income tax £4,400.00
- Class 1 National Insurance £145.60
- Class 2 National Insurance £1,254.60
- Total for 2016/2017 £5,800.20
- Payment on Account £2,827.30
- Total to pay by 31 January 2018 £8,627.50
Complete Your Tax Return
In our example Molly would need to complete the self employment section AND employment section of her Self Assessment Tax Return. She would need to disclose what she earned in her job which will be on her P60 provided to her by her employer.
When you are self employed it is important to budget for your tax and national insurance bill, one of the simplest ways is to set some money aside for HMRC as you get paid. If you are unsure how much tax you need to pay or of your tax status we definitely recommend you ask an accountant.
What About VAT? VAT affects all businesses, find out more here.