Navigating the Influencer Tax Maze
HMRC is targeting online influencers who use social media platforms to promote products and services.
The rapid growth of digital platforms and social media, both before and during the pandemic, has created new opportunities for online influencers. However, along with these opportunities come tax traps that individuals need to be aware of.
It's important to note that influencers are treated the same way as other self-employed individuals when it comes to tax. Regardless of whether income from influencing is their main source of earnings or not, it must be declared to HMRC.
What may begin as a hobby or side venture can evolve into a substantial income stream. If this income is generated from a trade, profession, or vocation, it is subject to taxation in the UK.
Social media influencers vary in terms of their background and the number of followers they have. Mega-influencers, such as A-list celebrities, have a significant public profile and millions of followers. On the other hand, nano-influencers have a smaller following, typically less than ten thousand, but are skilled at carving out a niche of dedicated followers.
Influencers aim to generate revenue by creating valuable content and engaging with their followers to promote themselves or other brands, thereby growing their online following across platforms like Instagram, TikTok, and YouTube.
This can involve acting as brand ambassadors or advertising products, for which influencers may receive payment or be given products or services as gifts in exchange for promoting the brand. Additionally, influencers may sell their own material, such as music.
The influencer industry is not limited to adults. It is not uncommon for teenagers to establish an online presence, and even children can earn significant income through social media influencing, leading to the term "kidfluencer" being coined for such individuals.
HMRC has taken notice of this rapidly growing industry. They have identified individuals who potentially earn income from online activities and are conducting targeted campaigns to encourage tax compliance. One approach they use is sending "nudge letters" to influencers who may have failed to report or declare their earnings in tax returns.
These campaigns are routine for HMRC and serve as a way to ensure individuals are paying the correct amount of tax at the appropriate time. While a nudge letter may not necessarily mean the start of a formal investigation into someone's tax affairs, it is crucial not to ignore it.
In many cases, influencers are not intentionally avoiding tax payments; they may simply be unaware that their trade or profession as influencers must be reported to HMRC. Given that income from influencing is generally subject to income tax and National Insurance contributions, it's important to consider whether an individual (or a child under someone's guardianship) needs to declare their activities and how to do so.
Anyone living in the UK who makes a profit from online content must be aware of their tax obligations. It is likely that the profit will be taxable and should be reported to HMRC through a tax return.
Self-employed influencers can also claim certain expenses to offset their income, thereby reducing their tax liability. Deductible expenses for influencers may include marketing costs, subscriptions, distributed content expenses, and travel expenses, among others.
In addition to earning monetary income, gifts received by influencers are usually considered income. This means that influencers who receive products or experiences as gifts in exchange for featuring them may have an obligation to include the monetary value of these items when calculating their taxable income.
Furthermore, influencers who sell physical goods or provide intangible services may have a VAT (Value Added Tax) liability in the UK. VAT registration may also be required when supplying digital services to customers outside the UK.
Influencers selling online should carefully consider the role of platforms or marketplaces they use and ensure that VAT is accounted for correctly.
If you have concerns about your tax situation, it is important to consult a qualified tax adviser for assistance. Whether you are considering future actions or have received an enquiry letter from HMRC, a tax adviser can assist you in understanding your obligations and facilitate effective communication with the tax authorities.
Failing to take action, especially after receiving a ‘nudge letter’, can result in increased penalties and further enforcement measures by HMRC.