Tax on Twitch Bits: What UK Streamers Need to Know

Tax on Twitch Bits is something UK streamers need to consider once they start earning money when viewers Cheer during their streams. Twitch Bits can generate taxable income in the UK, but working out how much you need to declare isn't simply a case of looking at what a viewer paid for their Bits.

But what exactly counts as your income, when does it become taxable, and how much do you need to report to HMRC?

The answer isn’t quite as straightforward as looking at how much a viewer spends. Bits pass through Twitch’s own monetisation system before generating revenue for the streamer. Consequently, the amount a viewer pays to buy Bits is not necessarily the amount that equates to your income.

For UK tax purposes, we therefore need to consider what you actually earn from Twitch, rather than simply what your viewers spend.

In this guide, we explain how tax on Twitch Bits works, when you may need to tell HMRC, what amount you should record and how Bits fit alongside your other Twitch and creator income.

Tax on Twitch Bits: key points

What are Twitch Bits and how do they work?

Understanding the journey of a Twitch Bit makes the UK tax treatment much easier to understand.

Broadly speaking, there are three stages.

A viewer buys Bits from Twitch

The viewer purchases Bits through Twitch. At this point, they are buying a virtual item from the platform. However, the amount they spend buying those Bits is not automatically treated as your income.

The viewer uses Bits to Cheer

The viewer can then use their Bits to Cheer during a stream and support a particular creator. Twitch describes Cheering as a way for viewers to indicate support in chat.

The streamer earns revenue

Eligible Twitch creators can earn revenue when viewers use Bits to Cheer in their channel.
Importantly, it is this third stage that is particularly relevant when considering tax on Twitch Bits in the UK.

Unfortunately, you can’t simply look at what a viewer paid Twitch for their Bits and record that amount as your income.

How much do Twitch streamers actually earn from Bits?

This is probably the most important tax question about Twitch Bits.

Twitch currently states that Partners and Affiliates receive US $0.01 for every Bit used to Cheer directly on their channel.

Therefore, if viewers use 10,000 qualifying Bits to Cheer for you, that would generate US $100 of creator revenue under this arrangement.

However, the viewer may have paid a different amount when purchasing those Bits.

Consequently, when calculating the tax liability on Twitch Bits income, your Twitch records and statements should be the starting point for establishing the income attributable to you.

This is much more reliable than trying to calculate your income from what individual viewers may have paid to purchase their Bits.

Are Twitch Bits taxable in the UK?

Yes, Twitch Bits can be taxable in the UK. If your streaming activities amount to a trade, the revenue you earn from Bits will normally form part of your taxable trading income.

However, HMRC specifically acknowledges that creating online content can be regarded as an activity that generates taxable incomes.

Therefore, if you regularly stream on Twitch with the intention of making money, your streaming activities may amount to a trade. If they do, revenue you earn through Bits will normally form part of the trading profits of that business.

This doesn’t mean that everyone who occasionally streams and receives a few Bits automatically has a tax bill. The wider circumstances matter.

However, if you are regularly producing content, building an audience and monetising that audience through Bits, subscriptions, advertising and sponsorships, you are much more likely to be carrying on a trading activity.

In these circumstances, tax on Twitch Bits needs to be considered alongside the rest of your creator income.

Aren’t Twitch Bits just donations rather than taxable income?

This is an area where the terminology commonly used by streamers can often cause confusion.

Viewers and creators sometimes describe payments made to streamers as “donations”. However, calling something a donation doesn’t automatically mean it is tax-free.

A viewer may voluntarily decide to support your channel, but the resulting income can still arise from your activities as a streamer.

However, if you are creating content, building an audience and monetising that audience, revenue generated through Twitch’s monetisation system would not normally become a tax-free personal gift simply because the viewer wasn’t required to make the payment.

A genuine unsolicited personal gift made for reasons entirely unrelated to your streaming activities could potentially have a different tax treatment.

But you shouldn’t assume there is no tax on Twitch Bits simply because a viewer chose to Cheer voluntarily.

This principle isn’t unique to Twitch. We explain this in more detail in our guide to gifts received by content creators.

When does Twitch Bits income become taxable?

There can be a timing difference between someone using Bits in your channel and Twitch actually paying money into your bank account.

For many sole traders, this is now relatively straightforward because the cash basis is the default method of calculating taxable trading profits.  However, this may not apply if you opt to use traditional accounting or are excluded from using the cash basis.

Under the cash basis, income is generally recorded when it is actually received rather than when it is owed to you. This does not necessarily mean the date the money reaches your bank account. Income may be treated as received when it becomes available to you, depending on the particular payment arrangements.

Therefore, you should retain your Twitch statements and payout records so that the income shown by Twitch can be reconciled to the amounts you receive and when they become available to you.

Different rules apply if you use traditional accounting or operate your streaming business through a limited company.

What if my Twitch income is paid in US dollars?

If you are UK based, your taxable income ultimately needs to be calculated in the pounds sterling equivalent.

Therefore, if your Twitch earnings are denominated in US dollars or another foreign currency, the relevant amounts need to be converted into GBP using an appropriate exchange rate.

However, where Twitch or your payment provider converts the payment into pounds before it reaches you, your statements may already contain much of the information required.

Where amounts remain denominated in another currency, you should retain records showing the original amount and how it was converted into sterling.

This becomes especially important for creators earning income from several overseas platforms.

What about the £1,000 trading allowance?

If you’re a smaller or newer Twitch streamer, the £1,000 trading allowance may mean you don’t need to report your streaming income to HMRC.

Where your total gross income from qualifying trading activities is £1,000 or less during the tax year, you may not need to tell HMRC about it, subject to certain exceptions.

The important point is that the £1,000 threshold doesn’t apply to Twitch Bits in isolation.

For example, if you receive £500 from Twitch Bits, £300 from subscriptions and £400 from sponsorships, your total gross creator income is £1,200. You can’t simply look at the £500 of Bits and conclude that you’re below the £1,000 threshold.

HMRC requires you to consider your relevant trading income as a whole.

Therefore, if your creator income exceeds £1,000, you may need to register for Self Assessment and report your income to HMRC.

What Twitch records should I keep?

Your bank account doesn’t necessarily indicate the complete position when it comes to tax on Twitch Bits.

In particular, the amount a viewer pays to buy Bits isn’t the amount you should automatically record as your income. Therefore, your Twitch records are important records of what you actually earned.

You should keep records such as:

You should also retain invoices and receipts for any business expenses you claim.
Importantly, retaining these records as you go is much easier than trying to reconstruct your Twitch income at a later date.

Does Twitch report streamer income to HMRC?

Digital platforms can be required to collect and report information about people earning money through their services to tax authorities.

This isn't a new tax on Twitch Bits. If your streaming income is taxable, the underlying tax position is the same regardless of whether information has been reported to HMRC.

However, increased reporting by online platforms makes it particularly important to keep accurate records and correctly declare taxable creator income.

How Twitch Bits become taxable income

It can help to think of the tax treatment as a journey from the viewer buying Bits to the streamer ultimately earning taxable income.

The key point is that tax on Twitch Bits isn’t a separate Twitch tax. Bits are simply one way in which your streaming activities can generate taxable income.

Need help with tax on Twitch Bits?

Tax on Twitch Bits is relatively straightforward once you understand what counts as your income. The key figure isn't what viewers pay to buy Bits, but the revenue you earn through Twitch when those Bits are used to Cheer in your channel.

As your channel increases in popularity, Bits may also sit alongside subscriptions, advertising, sponsorships and income from other platforms. Keeping accurate records from the outset can make it much easier to work out what needs to be reported to HMRC.

At TFA, we specialise in helping content creators with their tax and accounting. Whether Twitch is a side income or has developed into a full-time business, we can help make sure your creator income is reported correctly and that you're claiming the expenses you're entitled to.

For more information on the wider tax rules, take a look at our complete UK tax guide for content creators, or get in touch with our team to discuss your circumstances.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

Alternatively, please feel free to complete our Business Questionnaire here.

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