Social Media Influencers: Tax Obligations and Gifts.

Are you a Social Media Influencer and need help navigating the regulatory landscape?

In the ever-evolving world of social media, social media influencers have taken centre stage, with their ability to sway opinions, shape trends and collaborate with brands. However, as this industry continues to grow, it’s important for influencers to be aware of their tax obligations. While there’s no specific legislation targeting social media influencers, HMRC has taken notice and is keeping a close eye on this burgeoning sector.

Taxation of social media Influencer Income

In the UK, social media influencers are subject to the same taxation rules as any other individual. This encompasses earnings from sponsored posts, brand partnerships, and various forms of social media advertising. Typically, influencer income falls under the category of self-employment income, triggering self-employment taxes, including potential National Insurance Contributions (NICs).

Where a social media influencer is receiving untaxed income above £1,000 they must register as self-employed with HMRC. [Help!]. This mandates the annual submission of a self-assessment tax return which is due by 31 January following the tax year in question.

Tax Considerations for Gifts or Products

Determining the tax treatment of gifts or products received by influencers depends on several factors.

First and foremost is the influencer’s employment status. If an social media influencer is classified as an employee and receives a gift in connection with their employment, their employer will file an annual return outlining the benefit/gift they received, HMRC will then adjust the employee’s tax code to reflect the additional tax payable on this benefit.  Although if the employee is also registered for self-assessment, details of the benefit will also need to be included in their tax return.

However, when services or products are exchanged for an influencer’s endorsement, without a direct link to employment, the tax treatment becomes ambiguous. Taxation is usually applied where an individual has received consideration for a service. Where the consideration is in the form of a non-monetary item (i.e. clothing, makeup or technology) tax may be due on the market value of the goods or service. Furthermore, even if the influencer is not explicitly engaging in trade, the products or services received may not be considered gratuitous and thus may be taxable.

If a brand sends a gift that wasn’t requested or that the individual isn’t obligated to promote, typically there wouldn’t be an expectation to pay tax on it. However, if there was a decision to “post” about the gift, or enter into a paid partnership with the brand, the chances of the gift being a genuine “freebie” decreases.

The good news is that gifts that do not mandate service and which cannot be swapped for cash usually don’t attract taxes. This category includes “non-transferable” items like exclusive experiences, non-transferable holidays or hotel stays, which are typically considered tax-exempt.

Given the complex nature of what qualifies as ‘paid ads’ or ‘sponsored posts,’ the CMA published guidance in November 2022 aimed at uncovering hidden advertisements on social media platforms.

HMRC’s Nudge to social media Influencers

Earlier this year, HMRC sent out what are commonly referred to as “nudge letters” to thousands of influencers, gamers, and online traders. These letters serve as a friendly reminder to influencers that they should be paying taxes on their earnings. Whether you’re making money through cash transactions, YouTube advertising revenue, or sponsored posts; if your total income exceeds £1,000 in a tax year, it must be declared to HMRC through a self-assessment tax return.

Furthermore, beyond the influencers themselves, HMRC has extended its scrutiny to businesses that provide complimentary ‘gifts’ to influencers in exchange for brand promotion on platforms like Instagram, TikTok, and YouTube. In some instances, VAT assessments have been issued to businesses for inaccurate VAT reporting on the value of these gifts.

Influencers themselves might not have given much thought to the VAT implications of these arrangements, and they may not even be registered for VAT. This can create a double challenge: the business offering gifts cannot pass on the VAT cost, nor can it claim VAT relief on the advertising and promotional services it’s deemed to have received from the influencer in exchange. This complex web of VAT considerations has also put many businesses and influencers on HMRC’s radar.

Accurate maintaining of records

Crucially, influencers must maintain accurate records of both income and expenses, which they should use to prepare their tax return and may need to be provided to HMRC should their return be enquired into. HMRC are in the process of implementing Making Tax Digital for landlord and the self-employed so where possible, it’s worth ensuring these records are kept digitally [How software can help with bookkeeping]

In conclusion, as social media influencer collaborations continue to evolve, businesses must anticipate the tax and legal consequences of these transactions. Written agreements between influencers and businesses can help address potential tax implications, ensuring compliance and transparency in this dynamic landscape.

If you are a social media influencer and need advice then contact a member of the team

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