People are giving me money for no good reason - how do I tax it?

Question

I know this is going to sound strange to a lot of people, but I have a website whose entire purpose is to allow random strangers to send money into my PayPal account. They receive absolutely nothing in return, apart from bragging rights (their username gets put on a leaderboard of sorts).

If it sounds nonsensical or dumb, it's because it is; consider it a social experiment of sorts. Why would anyone actually do it is beyond me, but it happens. In fact, the reason I am asking this question is because my balance is beginning to grow and grow.

I've not set up a company behind this; the account the money is going into is a personal one.

How do I explain/classify this revenue to the tax man?

Answer 1

I am not well-versed in UK tax matters, but quick googling seems to indicate that recipients do not pay tax on received gifts, although the givers may have to pay tax on amounts that they gift others, above a threshold [looks to be 3k in most cases]. If this isn't a gift, then it seems to be personal income earned by you in a non-incorporated business, and thus could be taxable.

HOWEVER - be cautious about claiming that the money you are receiving is a 'gift'. You state that there is no benefit given to these people and that you 'do not know why they do it', yet very clearly there is public recognition of the gift in a way that indicates they may have motives to do so. From what you have said, these people are expecting their names to pop up on a leaderboard by giving you money.

You could argue that someone buying a 'lootbox' in a videogame receives "nothing tangible but bragging rights indicated by the cosmetics that they then win", yet gaming companies don't report these amounts received as 'gifts', they record them as taxable revenue.

There is a question, then, as to whether HMRC will agree with the idea that this is a gift, or is in fact business income you earned by clever social marketing. UK Tax law is largely based on legal precedent from prior cases that have made their way through the courts. In order to get guidance on what the current interpretation for your situation would be, you would need to hire a competent UK tax practitioner.

If the amount you are earning through this is too small to seem 'worth it' to contact a tax accountant / lawyer, I highly recommend you just claim it as income to be safe, and pay tax on it. If it would be a large amount of tax (into the multi-thousand pounds territory), consider paying for legal advice to guide you on whether you would have justification to claim these as non-taxable gifts.

Answer 2

The BIM (Business Income Manual) talks at length about what constitutes a "trade" (meaning "business", in the sense of "tradesman"; see BIM20000), which is the term ascribed to any activity whose profits are subject to Income Tax. There is no solid definition of trade (though there are established "badges of trade" that are used as a sort of checklist by the courts; see BIM20200), and so in such exceptional cases, one needs to appeal to relevant case law to establish whether the activity is a trade. I am no lawyer, nor do I see any particularly similar case law cited in the BIM, but perhaps the most relevant section of the BIM is BIM20215, concerning activities which yield a profit despite that not being the primary purpose of the activity, and which leads me to believe that your activity does constitute a trade.

Having said that, get legal advice.