These days, growing numbers of people earn an income as a social media influencer, gamer or online trader. Many of these people are relatively young and not fully aware that they need to pay tax on their income and – sometimes – gifts they receive. As a result, HMRC is writing to 2,300 online ‘content creators’ who get income or gifts via their activities on platforms such as Instagram, TikTok and YouTube. The taxman is also sending a further 2,000 nudge letters to people who sell goods and services via online sites such as eBay and Facebook Marketplace. But what is the actual position regarding social media influencers and tax?
What is a social media influencer?
Let’s start by clarifying what a social media influencer is. Generally these are people who have built up substantial followings on social media sites. Sometimes they will have millions of followers.
Influencers can specialise in a whole range of activities, from sharing make-up or fashion tips through to reviewing software or mobile phones. Often these people are given money to endorse certain items or are given free items to review.
Social media influencers and tax
If a social media influencer receives more than £1,000 in income during a tax year, they must declare it on a Self-Assessment Tax Return. Some people believe that they don’t have to declare income if they earn less than the annual tax-free allowance of £12,570 per year. This is not the case. If an influencer fails to fill in a tax return, they face penalties even if they don’t own any tax.
The bottom line: if you’re earning more than £1,000 online or think you will, register for Self-Assessment now.
Do influencers pay tax on gifts?
This is where it’s a good idea to get advice from a professional accountancy firm such as a THP.
Social media influencers can receive all sorts of freebies in return for their endorsement. These can be anything from clothes and shoes through to mobile phones and watches. They can also include things like free flying lessons.
Whether an influencer pays tax on these items depends on whether HMRC deems them to be ‘trading’. What ‘trading’ actually means isn’t very clearly defined. However, ICAEW points to the guidance that applies to professional writers. Writers are deemed to be trading if they:
- Organise their life so as to regularly spend time on their writing to produce work which has a commercial value
- Combine this with a persistent and systematic marketing of the work for their own financial benefit.
If you apply the same principles to social media influencers, then those who devote a lot of time to creating and promoting their content will be considered as trading.
This means that an influencer who falls into this category may need to declare certain gifts they receive as a ‘barter transaction’. This applies to gifts that can be converted into money or something of direct monetary value. For example, a new mobile phone would fall into this category. However, if an influencer received a non-transferable holiday, the fact that it’s non-transferable means it can’t be converted into cash. Therefore it does not have to included in trading profits.
I’m an influencer. Can you help me?
If you are an influencer and you would like help to make sure you’re complying with tax rules, please get in touch. One of our accountants would be delighted to advise you.
About Ben Locker
Ben Locker is a copywriter who specialises in business-to-business marketing, writing about everything from software and accountancy to construction and power tools. He co-founded the Professional Copywriters’ Network, the UK’s association for commercial writers, and is named in Direct Marketing Association research as ‘one of the copywriters who copywriters rate’.