When new ways of making money become popular, HMRC are always keen to ensure taxpayers are aware of their obligations – the treatment of cryptocurrency assets being a relatively recent example – though the Department is often playing catch-up to innovation. In this article, we consider the tax implications of social media influencers.

There is currently no legislation specifically targeted at social media influencers, however the fast-growing industry is very much on HMRC’s radar. In fact, earlier this year HMRC sent nudge letters to thousands of influencers as well as gamers and online traders on sites such as Etsy and Facebook Marketplace to remind them that they should be paying tax on their earnings.

Premise

The term ‘influencer’ may well cause eyes to roll in some quarters, particularly if a close friend or relative has declared it as a career aspiration. However, social media influencers are abundant – and many of them are making a lot of money for their content.

The basic premise is that an influencer is someone who uses their knowledge and/or expertise of a particular topic to create content on one or more social media platforms. Once their reputation increases sufficiently, their audience is likely to grow – in Newspeak, this is generally measured by the number of followers the influencer’s chosen medium, e.g. a YouTube channel, has attracted.

Brands are keen to take advantage of this ready-made audience and may partner with particularly successful social media personalities to promote products or services. A basic example might be a make-up artist demonstrating particular styles via a channel. If they have a significant number of followers, a brand may approach them to endorse or test out their products on their videos.

The benefit for the brand is obvious, particularly as a loyal following is more likely to trust an endorsement than what might be seen as inauthentic advertising. But what is in it for the influencer? This will depend on the particular relationship agreed, but could include payment of fees, discounts or even free products or services. All of these have tax consequences.

Scale

An influencer with more followers will have more bargaining power than those with a smaller audience. There are no hard rules, and rate scales will vary from platform to platform, but influencers with followings of up to 1,000 users might be paid £10 to £500 per post. This increases all the way through to so-called ‘mega-influencers’ (those with more than 1m followers), who could be paid more than £8,000 per post. Payments could also be contingent on viewing numbers.

Celebrity influencers will command even more – one of the ubiquitous Kardashian sisters reportedly receives over $1m per post. But the smaller scale influencer still needs to consider if (and what) they need to make a disclosure to HMRC.

Back-to-basics

The rules regarding this kind of income are not new. They just need to be applied through a slightly different lens. The first question will, of course, be whether the influencer is trading or not by reference to the usual badges of trade. In some cases, particularly for younger content creators, the activities may simply amount to a hobby, with any compensation (monetary or otherwise) accepted as a mere gratuity by HMRC.

However, for most it is unlikely that provision of, say, a free product or service will be gratuitous. This will especially be the case if the influencer has reached out to the brand to request something specific to use in their content. Even if they are sent a product with no agreement in place, subsequently using it in content will probably be classed as a paid advertisement, which brings its own regulatory complications. The Competition and Markets Authority (CMA) is the appropriate regulator, and guidance is available at https://www.gov.uk/government/publications/social-media-endorsements-guide-for-influencers. At the time of writing, there is little to nothing in respect of tax guidance for influencers from HMRC.

For the purposes of this article, we’ll assume that it is accepted that the influencer is trading. They would need to consider the employment status rules, but again we’ll assume that these don’t bite here.

If our hypothetical influencer has no other income, they are probably aware that they can make profits of up to £12,570 without triggering any tax or NI charges. However, this doesn’t mean that they can afford to dismiss any thoughts of HMRC outright. If their profits are below the personal allowance, they may still need to register for self-assessment and declare their income and expenditure if the total revenue exceeds £1,000 (the trading allowance) for the tax year. This is often overlooked and can lead to penalties – especially if a tax return is issued and ignored or forgotten. A return filed late can easily attract a penalty of at least £1,600 even if no tax is due, unless a reasonable excuse prevented compliance. But what if instead of cash you are paid for your services as an influencer with freebies such as the latest trainers or a luxury holiday? Read our blog on non-cash gifts here.

Measuring it

Having established that the activities constitute a trade that needs a self-assessment return, the next challenge is to quantify the income. This will be relatively easy if it’s received as a good old fashioned cash payment. But what is the position for free products and services?

Any product or service received in exchange for exposure is a payment-in-kind, or ‘barter’ transaction. In most cases, the amount that needs to be declared as income will be the market value of the item or service. This will often be set out in the agreement between the influencer and the brand, and again is relatively easy – particularly in the case of a product.

This is subject to the overarching principle of receiving ‘money, or money’s worth’. It’s crucial to remember that if something cannot be converted into money (and there‘s no express provision for the amount to be brought into account), it is not a taxable trade receipt – see  BIM40051 . A product is clearly capable of being converted into money. However, where something provided to an influencer is not convertible, it can be excluded.

Example

Samantha partners with various brands for both products and services. As a reward, a well-known travel company arranges a stay at one of their five-star resorts. The holiday is non-transferrable, and therefore is not money’s worth. It is not a taxable receipt – even if Samantha produces content including the company.

Once the income is quantified, the influencer is entitled to deduct any expenses incurred wholly and exclusively for the purposes of the trade. Depending on the type of content produced, this could include things like:

•products purchased for review;

•mileage expenses;

•internet and website expenses;

•marketing;

•subscriptions;

•software;

•equipment (using capital allowances).

We have only looked at income tax here. Of course, VAT may also be a consideration if the income is significant. There are specific rules for barter transactions and set-offs that would need to be considered.

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