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My son has made about £4000 selling online gaming services

Resolved Question:

My son has made about £4000 selling online gaming services in a game called minecraft (similar to world of warcraft) by charging for in-game /intangible items.
He's only 14 so it's a bit confusing what to do tax wise - should I set him up a small business and pay any tax in my name, or can I simply wait until he's spent his money over time.
His money is currently in a separate Paypal account in my brother's name, but he's on working families tax credit (as am I) so it's a bit of a hot potato.
Is there a legal way of resolving this that doesn't impact greatly on our income tax situation.
Is it legal to split the money up into different people's names, each person paying relevant tax to them and then transferring the money into my son's account.
What's the best way for him to approach this presuming it's an ongoing income?
Thankyou.
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi
Thanks for your question, I am Sam and I am one of the UK experts here on just Answer.
Whilst only 14, he still is deemed to be a taxpayer, but as the income so far to date is less than the annual personal allowance (£9440 for 2013/2014 and £10,000 for this tax year) this still should be declared to HMRC, as him trading.
However, the complication is that the money is being paid into a paypal account owned by your brother, so in law, he should be declaring this income - which would affect both his tax (as one would assume that he has other income, so therefore is already utilising him personal allowances) and also will affect his tax credits)
I appreciate that you have to be over 18 to hold a paypal account - which is possibly why the account name is ***** ***** brothers name, rather than your sons, but as this is your sons income, this is the issue that needs addressing.
It would be better than your son have his own bank account - and that each time a sale takes place which sees a deposit being made into paypal, that this money then is transferred straight into your sons account.
This would manage the situation far better - and then HMRC and the Tax credit office can see, that this money is merely passing through the paypal account and not your brothers income.
You should also arrange for your son to register as self employed with HMRC - see link here to do this online
https://online.hmrc.gov.uk/registration/newbusiness/introduction
He then can submit a tax return each year - but will not be liable to tax, due to the level of income and will not be liable for National Insurance as under 16. (and its below the level of National Insurance due anyway!)
If some of these earnings were for the period 06/04/2013 to 05/04/2014, then a self assessment tax return will be due for last tax year, and this needs to be with HMRC by 31/10/2014 if filling in the paper issue, or by 31/01/2015 if filed using HMRC free online services. And if online is the way forward, then once your son has registered and HMRC have issued his 10 digit unique taxpayer reference - then he can register online.
Link here for using online services
http://www.hmrc.gov.uk/online/new.htm
One sticky beak in the ointment will be, your son will not be issued with his National Insurance number, until closer to his 16th Birthday - but this can be obtained sooner as they are allocated at birth,
You can ring 0300(###) ###-####for a request for this (they may have to pass the request through to the main office to process)
Opening hours8.00 am to 5.00 pm, Monday to Friday
Closed weekends and bank holidays
This is just a general overview, let me know if you have any further points you need me to expand on.
Thanks
Sam
Sam and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

Thanks.

That's very helpful.

My next question is:

Will I need to add his income (or at least mention it) on my working family tax credit forms?

Are they going to take his income into account and reduce my WFTC income?

If yes, do you have a rough idea how they approach it; for instance, if I have a WFTC income of £5000pa and a child tax credit income of £5000pa.

Thankyou.

Expert:  Sam replied 3 years ago.
Hi Robert

Thanks for your response

No you do not add his income onto your tax credit form, as
1) he is a minor and even when he gets to 18
2) he is not contributing to the household income - only a partner or husband/wife would be doing this
So at no stage would you need to declare this income for tax credit purposes.

So this will not impact on your entitled claim but do mention this if you wish for peace of mind to the tax credit office, so you know you have the official response.
But see link here from the gov.co.uk website as see under listings of what not to include
https://www.gov.uk/tax-credits-working-out-income#other-income

You can see its states

"income your children have had, unless it’s taxable in your or your partner’s name"

And this will be income that taxable in your sons name

Do ask any further questions, but it would be appreciated if you could rate the level of service I have provided, as this ensures I am credited for my time


Thanks

Sam



Customer: replied 3 years ago.

Great news - a lot of worry off my shoulders.


 


Would it be beneficial for me to set up a separate bank account in my name to make it easier to withdraw and refer his income?


 


If I do this, would it in any way be seen as my income (and taxable)?


 


Thanks.

Expert:  Sam replied 3 years ago.
Hi

No the account has to be in your sons name, there are many student bank accounts (both mine had them from age 11 - and could only withdraw from a cash point - so I guarded the cash point card - so I could help them get used to managing money!!)


But if you have this in your name, this again complicates the fact that it will be treated as your income.

Thanks

Sam
Customer: replied 3 years ago.

I'm not sure with Paypal whether the age of the bank account holder will be a restriction when linked to the Paypal account.


 


Would it be a viable solution to keep the Paypal account of my brother's, but link the Paypal withdrawals to my son's bank account (if it can be done)?


 


Or would it be better in HMRC's eyes for me to open a new Paypal account in my name, but link my son's bank account if possible.


 


Thanks.

Expert:  Sam replied 3 years ago.
Hi Robert

Thanks for your further questions

Its fine that the paypal account is either yours or anyone else's, just make sure that all the monies generated, can be linked to having been earned by your son and that each time money is paid into the paypal account, that its transferred straight to your sons account (whether this be weekly/monthly or per transaction and whether from pypal direct, or via the linked bank account)

You will need to check whether you can link your brother paypal account to your sons bank account.

Or through you - and I do think this would be better - as HMRC might ask - why are earnings your son makes coming via his Uncle and not a parent - but I have just found a student account which can be linked to a parent account

This might help
https://www.paypal.com/us/webapps/helpcenter/helphub/article/?solutionId=FAQ2200&topicID=ACCOUNT_TYPES_US&m=TCI

This does treat the income as the child's - but whether it can accept paypal transactions (from customers) you may need to see.

Thanks

Sam