To paraphrase the late Paul Daniels, ‘Not a lot’. But before we get into the meat of today’s Blog, I think it might be helpful to specify exactly what a social media influencer is, as defined by the Influencer Marketing Hub (a leading online platform that connects brands and their agents to influencers):
“An influencer is a person who has the power to affect the purchasing decisions of others because of his or her authority, knowledge, position, or relationship with his or her audience.”
Stories of self-styled influencers asking for free gifts in return for promotion of the product or service abound. Individuals who blag free products or services for their own consumption, by and large, do not appear to appreciate that they should declare and pay tax on the value of those items.
In the news last week, a sports agency claiming to represent a ‘well-known footballer’ emailed a bakery in Chester and ordered several large cakes. The sting in the tail came when the agency told the bakery owner that payment for the cakes would be in the form of ‘free promotion on their social media platform’, plus ‘a thankyou by the star on live television’.
As you can imagine, the owner of bakery was not impressed and replied: “I’m so sorry to hear that your client has fallen on such hard times that he can’t afford to pay a small business for his cake order. I am also feeling the pinch and my staff and I can’t feed our kids with exposure on Facebook and TikTok, therefore I must decline your most generous offer.”
The small business owner went on to post the exchange on her own social media, which went viral, and was picked up by a national newspaper. The result was the bakery got its extensive media coverage for free, and it turned out that the footballer involved had no idea what the agency had done in his name and subsequently changed agents.
Influencing online: Is it trading for tax purposes?
I’ve told the bakery story to highlight the point that payment for goods or services, is not necessarily in cash. Social media ‘influencers’ often receive this sort of payment-in-kind for effectively endorsing products, but is there a tax consequence? HMRC certainly thinks so and earlier this year it embarked on a campaign targeting online sellers and influencers for tax they potentially owed on undeclared sales.
The key thing that HMRC must establish Is whether or not there’s a taxable trade. In many instances, it will be clear that this is happening; for example, if an individual is receiving regular income from paid-for posts, brand collaborations and other forms of social media advertising then it’s highly probable that they will be viewed as trading and will owe income tax and NIC on the profit they make as a sole trader.
Influencing online: Taxable gifts
The tax treatment of freebies is more ambiguous, but it generally depends on what free gift is being given and its value. A comment by an influencer on Facebook that they consider, say Head & Shoulders, the best shampoo on the market and receive a case of the shampoo as a thankyou is probably okay, but only if it’s a one-off. But influencers undertaking promotional activity on a regular basis, and receiving regular ‘free gifts’, are likely to see HMRC viewing these as barter transactions, which are taxable.
HMRC will also not see the receipt of freebie products as gifts if the influencer involved requested the item in return for services. And it could get worse if the value of the freebies/gifts exceeds £85,000 in value per annum, then VAT will be applicable if the individual’s turnover exceeds the VAT registration threshold.
Online influencer’s endorsement income
A growing trend on influencers’ websites or their TikTok /Facebook pages is a small textbox or a thumbnail link that is designed to attract attention and encourage their followers to view a linked piece of online content. The influencer receives a small payment, which can be as little as a fraction of a penny per click, but if they have a lot of followers, it soon adds up to a lot of dosh, just ask Joe Wicks or Joe Sugg (who I’ve no doubt declare such income).
This ‘endorsement’ income is a growing trend and is clearly taxable, but in cases where there is significant control exerted by the sponsor there is also the distinct possibility that the individual could be viewed as an employee, in which case IR35 rules could apply.
Online Influencer: A new profession?
The new breed of entrepreneurial social media influencers clearly do not promote any product or service without expecting a reward for doing so. As Milton Friedman said, “there’s no such thing as a free lunch”. Anyone operating in the digital space need to consider whether their promotional activities amount to a trade, and it doesn’t matter if they’re paid in cash or in kind.
The new profession of the ‘social media influencer’ is a relatively new phenomenon and until Covid-19 came along, was by and large ignored by HMRC as a ‘fringe activity’. But lockdown caused an explosion in their numbers and as pretty much all of their affairs are on very public view, they are likely to be seen as ‘low hanging fruit’ by HMRC.
Online Influencer: Is it a hobby business?
A lot of individuals have tried to become influencers in recent years, but the sad fact only a handful have become really successful. For most budding one-man/one-woman budding entrepreneurs, they only achieve a very modest level of success. But do these individuals need to contact HMRC re their ‘hobby businesses?’ Perhaps, is the quick answer.
You will need to contact HMRC if your turnover goes above a £1,000 per annum threshold at which point you technically become a business in the eyes of HMRC. Even if you’ve made a loss or think that your income does not exceed your expenses, the £1k pa rule still applies, but if you do make a loss and have income from another source, such as a salary, you can offset the loss and potentially get a tax refund.
Tax Accountant’s view
HMRC have now set up a special unit to monitor social media and have targeted a number of individuals, as it’s relatively easy to identify whether a social media influencer is carrying on a taxable activity. So if you have aspirations to become a star of say, TikTok, and want more out of it than the odd case of shampoo, isn’t it about time that you gave HMRC a call, you know it makes sense!