In short: Affiliate marketing means earning a commission when people buy through your links. It is cheap to start, but you must label affiliate content clearly as advertising under UK advertising rules, and you must tell HMRC about your income once trading income goes over the £1,000 trading allowance.
Affiliate marketing is a popular side business because you do not need stock, a warehouse or customer service. You recommend products, share a tracked link, and earn a commission when someone buys. It can take a long time to build an audience, though, and the rules on advertising and tax still apply.
How affiliate marketing works
- You join an affiliate programme run by a retailer or an affiliate network.
- You get unique tracked links or codes.
- You place those links in blog posts, videos, social media posts or emails.
- When someone clicks and buys, the retailer pays you a commission, usually a percentage of the sale or a fixed amount.
Commission rates, cookie lengths and payment terms vary widely between programmes, so read the terms before you join.
Choosing a niche
The most successful affiliate sites focus on a subject they know well. Good niches tend to be:
- something you already understand or use, so your reviews are genuine
- an area where people research before buying, such as tools, software, travel or hobbies
- a topic where you can create useful content, not just lists of links
Think about who your reader is and what problem they want solved. Honest comparisons and how-to guides build trust; thin pages full of links do not.
Building your platform
You can start on a budget:
- a simple website or blog with your own domain
- a YouTube channel or podcast
- social media accounts focused on your niche
- an email newsletter, which you own and control
Do not rely on one platform. Algorithm changes can cut your traffic overnight.
Advertising rules: label your affiliate content
In the UK, affiliate content counts as advertising under the CAP Code, which the Advertising Standards Authority (ASA) enforces. It must be obviously identifiable as marketing. Both the brand and the affiliate are responsible.
The ASA's guidance includes:
- If a whole blog post or video is about affiliate products, put a label such as "Ad" in the title or thumbnail, so people see it before they click.
- If only some links are affiliate links, mark those links or sections, for example with "(Ad)".
- On social media, put the label at the start of the post, where it is visible without expanding the text.
- A disclaimer at the bottom of the page, or vague wording like "may earn a commission", is not enough on its own.
- Avoid unclear labels such as "#collab" or terms many people do not understand, like "affiliate" on its own.
You must also follow data protection rules if you collect email addresses, and consumer law on honest claims.
Tax on affiliate income
Affiliate commission is trading income. As an individual you have a £1,000 tax-free trading allowance each year. If your gross trading income is over £1,000, you must register for Self Assessment and report it. The deadline to register is 5 October after the end of the tax year in which you started. Keep records of what you earn and what you spend, such as hosting, software and equipment.
If your income grows, you may also need to think about VAT. You must register for VAT once your taxable turnover goes over £90,000. An accountant can tell you how the rules apply to you, especially if you are paid by overseas networks.
Sole trader or limited company?
Most people start as sole traders because it is simple. A limited company may make sense when:
- your profits are growing and you want to look at how company taxation compares
- you want to separate business and personal finances
- you want to look more established to brands and networks
- you plan to bring in a partner or hire help
The £1,000 trading allowance does not apply to companies. Whether a company saves you tax depends on your situation, so speak to an accountant before you decide.
How Form My Company can help
Trading through a company? Our Digital Package forms your company online and registers it for Corporation Tax, with the Companies House fee and VAT included. Want to keep your home address private? The Privacy Package adds a registered office and service address. We can also help with Self Assessment while you are still a sole trader.
Frequently asked questions
Do I have to pay tax on affiliate income?
Yes, it is trading income. Individuals have a £1,000 trading allowance; above that you must register for Self Assessment and report it.
Do I need to label affiliate links?
Yes. Under ASA rules affiliate content is advertising and must be clearly labelled, for example with 'Ad' at the start of a post or in a title.
Is it enough to put a disclaimer at the bottom of my blog?
No. The ASA says bottom-of-page disclaimers and vague phrases like 'may earn a commission' are not enough on their own.
Should I set up a limited company for affiliate marketing?
It can make sense as income grows, but it depends on your situation. Speak to an accountant about the tax effect before you decide.