The taxation of influencers

Influencers/content creation is a concept that has infiltrated our social media and internet use in the last two decades. Originally used as a creative outlet, this can swiftly become a lucrative career choice.

The rise of the influencer has resulted in many now occupying the place traditionally held by mainstream celebrities, taking part in prime-time programmes on TV and radio alike.

Worth an estimated 24 billion USD per year worldwide, it is natural to question where have they come from and how do they earn their money? There are also some tax matters that this population should be considering but may not be aware of which is what we will explore further here.

Income streams for influencers – what constitutes income?

Anyone, you or I, can in theory become an influencer. Whilst there is of course the need to be charismatic and relatable amongst other things to become popular, the outlay is very low, needing only internet access and a camera to generate a potentially significant return.

Any money made through influencing is taxable, although hobbyists can usually rely on the £1,000 tax-free trading allowance. Influencers earn income directly from advertising, endorsements, sponsorships, subscriptions, merchandise sales, affiliate revenue, promoting services or products, collaborations and partnerships. Broadly speaking, the more followers, subscribers, views and likes, the higher the income.

Cash received in this way is taxable income and the way any profits are taxed will depend on how the business has been set up, i.e. it will be different for a sole trader (self-employed) compared with a business operated via a limited company.

It can become complicated when influencers receive non-monetary items, such as payments-in-kind or free products/services usually with a hope that this will lead to an endorsement or review by the individual. Payment in kind that can be converted into money by selling, renting or exchanging, would likely constitute taxable income.

This becomes increasingly complex when we consider entirely unsolicited gifts. It is not uncommon for influencers to receive gifts from companies out of the blue where there is no prior agreement for them to promote, but can these items be treated as being sent with gratuitous intent rather than payment-in-kind for the anticipated promotion? This is a complex and subjective area, and it will be for the influencer to self-assess the position they think is correct and HMRC to challenge this if it disagrees.

Potential expenses

Influencers, like all businesses, must meet the test of ‘wholly and exclusively for the purpose of the business’ for an expense to be allowable.

For content creators, expenses may include: 

• equipment and technology, although caution to ensure it is not considered a “capital” expense is recommended 
• software and subscriptions (e.g. video editor tools) 
• professional fees (e.g. accountancy, legal) 
• marketing and promotion 
• the use of a home office i.e. if the individual has a dedicated space in their home that is used exclusively for work.

Crucially, if there is an element of personal use to these expenses, they would not be allowable unless the business proportion can be clearly defined. Travelling abroad to create content as an example will often include an element of personal enjoyment, making it difficult to apportion claims on a just and reasonable basis.

VAT

Influencers selling digital products or services must also consider the VAT implications, particularly if they exceed the turnover threshold (currently £90,000). They remain under the same obligations as traditional traders to account for and report VAT to HMRC, although the position is complicated by the place of supply rules when there is global success.

Issues

The global nature of digital platforms, with influencers working with brands and audiences across the world raises complex taxation implications.

HMRC believes that there is a substantial amount of un/under-declared tax in this space and is increasingly looking at businesses and platforms who use individuals as patrons, to identify influencers who are not yet declaring this income to HMRC.

Businesses must account for their costs of providing free products and services to the influencers. In receipt of this information HMRC can then identify individuals who may fall under the trading rules, and in many cases instigate an enquiry.

What should influencers do?

Individuals must ensure meticulous record keeping, crucially in case of a potential enquiry where penalties, on top of any tax and interest, could be sought for inaccuracies.

HMRC has recently launched a tool that will help people determine if they need to declare anything, although there are many subtleties and complexities in the tax world so it is recommended that proper professional advice is taken given the very basic nature of the tool.

We can help you rectify your affairs if they have fallen behind.

Get in touch with Crowe’s Tax Resolutions team or your regular Crowe contact.