Enterprise News

Virtual tax

Sep 07 issue

Online gamers who participate in virtual worlds such as Second Life could find themselves hit by unexpected tax bills, according to Mark Simpson, director at chartered accountant Simpson Burgess Nash. Second Life alone has nine million users, and an economy that has grown from $64 million (£31.5 million) in September 2006 to almost $600 million today.

‘It might seem surreal or just nonsensical at first, but people are starting to make significant sums in virtual worlds,’ Simpson comments. ‘It is bound to arouse the interest of HM Revenue and Customs (HMRC).’

Virtual wealth is held in currencies such as Second Life’s ‘Linden dollar’, which can be converted to US currency at a rate of around 260 to 320 Linden dollars to the greenback.

The rapid growth seen by businesses operating in online worlds has led to the issue of taxation being discussed by US Congress, which is due to release a report on the subject soon. Simpson argues that it will not be long before the debate kicks off in the UK.

‘It will not be as simple and straightforward as collecting income tax in the offline world,’ he adds. ‘Do you tax residents in the virtual world or after they have converted their money to recognised currencies? If HMRC taxed virtual profits it would have to accept payment in currencies such as Linden dollars.’

Taxing residents of virtual worlds raises other issues, Simpson continues: ‘Inheritance tax: does virtual wealth form part of the estate? Is VAT payable on goods that in reality only exist on a computer server?’
Simpson adds that his firm, based in Old Trafford, is opening a practice in Second Life to deal with these issues.