18 April 2023
As the cost-of-living continues to rise and tax allowances and thresholds are frozen or reduced, many individuals are facing higher tax bills and/or reduced spending power. As a result, more people may be tempted to explore the possibility of additional income streams such as social media influencing. This income can, in some instances, benefit from the trading and miscellaneous income allowance, meaning that up to £1,000 of such income can be received free of income tax.
In some cases, earnings may be low. For example, influencers operating on TikTok – which has cemented its popularity among younger internet users – have reported earning between just $0.02 and $0.04 for every one thousand views through their creator fund. However, they may also receive ‘gifts’, and it is in respect of these that some could suffer an unexpected tax liability.
The various gifts and other benefits that social media influencers receive are often clearly evidenced online for HMRC to see and many may be taxable. Given the value of gifts and other benefits some influencers achieve through their online activities, and the increasing number of influencers who are earning at a more modest level, HMRC is turning its attention to what it sees as an easy target. After all, the nature of influencing is that activities, and hence many receipts, are made public.
What income is taxable?
Many influencers receive gifts either as a ‘thank you’ for endorsing products, or as encouragement to do so. Where there is a contract for these endorsements it is pretty clear that items received in return should be treated as a source of taxable income. Where there is no contract, a ‘gift’ may be accepted by HMRC as being gratuitous if the influencer is not trading, or if they do not use or endorse it, but it may become taxable once an endorsement is made. The taxable amount would most commonly be the market value of the gift or service provided.
Influencers may also have other income flows such as conventional advertising revenues, subscription services and payments for appearances. These are generally rewarded by monetary payments, so valuation may not be a concern, although cryptocurrencies may also be used which will add complications.
What expenses are deductible?
If an influencer’s activities amount to trading, they will be entitled to deductions for expenses incurred wholly and exclusively for the purposes of that trade. Items such as the costs of running their website, various social media feeds, travel, equipment and assistance will be deductible. However, if there is a duality of purpose where the expense relates to both personal and business use, only a proportion of the expenses, if any, may be allowed.
What to do now?
The main concern for influencers whose their taxable income is made up of gifts and free services will be how to fund the resulting tax liability. HMRC will expect a cash payment, so even cryptocurrencies may not be a good place to keep your tax reserve.
Any influencer who is liable to tax on these activities would be wise to prepare their tax returns early so they can quantify their upcoming tax liabilities and have plenty of time to ensure tax payments can be made when they are due. You cannot pay HMRC with a holiday, or by cryptocurrency that has radically fallen in value.
Most businesses at least have the advantage that their income is in cash, which makes settling tax liabilities simpler. For influencers that often receive payments in kind, calculating tax liabilities and ensuring they have the cash to pay them may require much more planning.