Could Esports players be next in the taxman's sights?

11 August 2015

George Bull and Mike Down

For the 350,000 people from 96 countries attending the Gamescom computer games fair in Cologne this week, among the reported highlights were the latest developments in Esports.

For the uninitiated, Esports are organised multiplayer video game competitions involving predominantly professional gamers. Spectators can watch the games both online and at real-life tournaments, and with some gamers now earning six figure sums, tax authorities have their sights trained on them.

What was until recently a niche activity mainly considered to be performed by teenagers and males in their early twenties, Esport is now a $600m a year market with an estimated 134 million worldwide viewers. The demographic of a typical Esports player is still mainly male and below the age of 35 and with predictions suggesting that the market could be generating $1bn of revenue within two years this is a big business that will continue to grow.

The revenues created are not only for the game publishers but also the individuals and/or teams who compete, the leagues that organise events, live streaming platforms and so on. Individuals and/or teams will win not only prize money and a salary, but also can receive sponsorship packages, commission from hosting games, endorsements, sale of merchandise and advertising income.

HMRC can be expected to take a keen interest in this marketplace, having recently taken steps to obtain user information from digital platforms such as eBay, PayPal and Airbnb.

For successful gamers Esports can generate significant income with figures in excess of $300,000 per year and even a far less successful gamer is unlikely to be able to argue with HMRC that it is just a hobby and that the income should not be taxed. In many ways these virtual world sports stars are likely to be treated by HMRC just like their real world sports counterparts.

With income coming from multiple sources an individual will have complex tax issues to consider and report on in a timely and accurate manner, and this will include consideration of whether a VAT registration is required.

A team of professional gamers will also have to consider what structure they utilise and what tax reporting is required to be made, including the potential for PAYE/Real Time Information requirements if remuneration is paid to team members.

The days when parents only had to worry about whether their teenager was spending too much time playing video games and missing out on the sunshine may be replaced by wider concerns. Could their son or daughter become a target for HMRC and in the absence of proper procedures, could this lead to a costly and time consuming 'competition' with the taxman?