Tax Talk: When must influencers pay tax?

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HMRC is beginning to crackdown on social media influencers who may hide their earnings or be unaware of how their activities are taxed. We explain what to look out for.

The meteoric rise of social media is impossible to ignore. So, too, is the emergence of a new type of professional – the social media influencer.

These influencers have taken platforms like Instagram by storm. Connecting with their thousands, sometimes millions, of followers they have the ability to link companies with a wide audience in seconds through a social media post.

As with any profession, operating as a social media influencer brings with it tax implications that they should be aware of.

What could they be taxed on?

An influencer will usually be paid a fee to promote a specific product or service through their social media platform. Any fee received in respect of advertising should be reported to HMRC as taxable income.

The situation is more complex when the reward is not cash. But if an influencer receives a product or service from a company in return for an advertisement or ‘influence’, the value of this will likely be taxable. For taxation purposes they will need to determine the financial worth of the transaction, which could be difficult to ascertain. This might be the cash value equivalent of the product or service.

For example, a one-week stay at an exclusive resort in the Caribbean worth £3,000, paid for by the hotel company, is likely to be taxable if they are required to post on social media about their stay as part of the agreement.

Similarly, if they receive a fee from a company to provide social media posts advertising their products and that company sends a thank you gift for the hard work, they may be subject to tax on the value of the gift. This applies even if the company had no legal obligation to provide the influencer with the gift.

Note that HMRC has no specific guidance for influencers as to what is and isn’t taxable.  But existing guidance for writers and athletes may be useful in some circumstances.

How will they be taxed?

The taxation of an influencer’s income is based partly on whether they are considered trading or non-trading. 

This in turn depends on factors such as the frequency of their advertising posts on social media and whether there is a profit-seeking motive to their activities.

If non-trading, the value of any cash, taxable products, services or gifts they receive from their influencer activities is treated as miscellaneous income and subject to tax at their marginal rate: 20%, 40% or 45%.

If they are considered a trading influencer, their trading income minus allowable expenses is treated as profits. Whilst also taxed at their marginal rate, they may be subject to Class 2 and Class 4 National Insurance contributions. And, if turnover is above £85,000, they will need to register for VAT.

But a gross income from influencing of £1,000 or less may be covered by the trading allowance and no tax will be due.

Is a freebie always a freebie?

For those considered to be trading, it’s likely the value of any freebies will be treated as taxable income. This could mean being left with a substantial tax liability and no cash to pay it. So this is important to bear in mind when negotiating an agreement with a company.

If non-trading, where there is an existing agreement in place the value of any gifts from a company will normally be treated as taxable. But if the influencer receives a freebie from a company without their prior knowledge and there is no contractual obligation, the voluntary gift is potentially tax-free.

HMRC will likely increase its interest in social media influencers over the next few years. If you are receiving an income from your social media posts or products, services and gifts in lieu of cash, you should take professional advice, as you may need to register with HMRC and complete a Self Assessment tax return.

For more information about the issues raised in this article, please contact Andrew McCready.