Tax for social media influencers

When does influencing become a business?

Firstly, from an individual perspective, is it important to consider whether one is actually trading as a business? That is, for example, specifically developing a social brand with the aim of making income in this area?

Or is something purely a small-scale hobby? If it is the latter, you have no problem – activities from hobbies are not innately taxable. However, as one can imagine, it is easy for something which is initially just a hobby to become something more substantial over time and hence something which at some stage becomes taxable income. Moreover, it is often difficult to assess at exactly what stage something which was purely a hobby done for fun has become a business, so people should take care in this regard. Alternatively, it is quite possible that some social media influencers could in principle be held to have become employees of the brands that they promote.

When considering whether you have a client (potential client) who is a social media influencer and whether they are trading or not, as one would expect, it is necessary to consider their position with regard to the established ‘badges of trade’. These include:

• Whether there is a profit-seeking motive;
• The number / frequency of transactions;
• The nature of the asset(s) involved – e.g. is it something which is for personal pleasure or is it something which has a clear ‘business purpose’ such as plant and machinery;
• Does the individual make any changes to the asset;
• Are there sales and if so, how are these made / organized;
• The time between acquisition and sale;
• What financing does the business have and how is this arranged (e.g. loans or just self-financing);
• How are the ‘sale items’ acquired (e.g. purchase, gifts, inheritance); and
• Is there any links to this ‘trade’ to other activities that the individual is involved in?

In practice, however advisors and taxpayers should take real care when considering these badges of trade. This is partly because no ‘one’ test is all important and some factors may not be present in particular cases. Moreover, clearly the tests have developed over many years and a range of court rulings and are not really designed specifically for the ‘social media age’ or the new ways of working and trading that this has created.

However, one could suggest that if someone is clearly looking to promote themselves online with the idea of making a profit and has the equipment (recording machinery, audio equipment etc.) and is pro-actively working with businesses to promote their products, that they could easily be involved in a trade.

What does trading mean from a tax perspective?

Typically this will require the individual social influencer to:

• Register as self-employed with HMRC and start completing annual tax returns; and
• Become liable to NICs (class 2 and class 4 at this stage, though there class 2 NICs are scheduled to become purely ‘voluntary’ from April 2024 onwards following the announcements in the 2023 Autumn Statement).

It will also become necessary for the individual to ensure that they have proper business records, for example, to ensure that they can justify any business expenses they claim (e.g. in the case of a tax audit).

Advisors should also consider the ‘wider issues’ that such individuals might be facing. For example, if someone is a small-scale social media influencer and only earns say £5,000 – £6,000 per annum from the trade (and no other earnings), it might still be appropriate to discuss issues such as class 2 NIC contributions with them, as a way of trying to ensure that they qualify for a state pension on retirement.

What about Taxed Award Schemes?

In some cases, social influencers may be able to avoid a tax liability on the gifts which they receive from suppliers and are expected to promote. This would be the case, if the product supplier has agreed a ‘Taxed Award Scheme’ (TAS) with HMRC.

In that scenario, the liability for income tax and NICs has been ‘taken over’ by the producer and the social influencer (or their tax advisor), does not have to declare that payment or product as their annual tax return.

What about VAT ?

Social media influencers are often not involved in invoicing clients for services in the way one sees with ‘traditional businesses’, though it is difficult to provide any absolute ‘hard & fast’ rules in this regard. After all, some social influencers are selling focussed ‘marketing services’ to customers in effect, whilst others might be providing online coaching and some others are just in a broad sense ‘creating noise and commentary’ in a totally ad-hoc manner with their income being equally ‘ad-hoc’.

As such, the VAT position for social media influencers should be considered on a case-by-case basis. However, the following general points should be noted:

• Keep reviewing what the UK value of their sales are (i.e. is the £85,000 of VATable sales exceeded in the UK); or
• Are they involved in selling merchandise, for example, as an extension of their initial online ‘brand’ with a ‘specific catch phrase’? If so, this could be a supply of goods for VAT purposes (subject to exemptions for children’s clothing, for example); and
• In some cases, one needs to consider not just the UK VAT position but VAT (or similar taxes) in other countries too (e.g. because the influencer is selling specific products / merchandise or whatever from the UK into these other markets).

What about VAT and the products / services provided by Suppliers (and the wider tax issues for suppliers)?

Additionally as an advisor, you might be providing support and guidance to companies who use social media influencers as part of their marketing strategy. In this case, you need to be able to discuss issues as the tax award scheme option with the company (as mentioned above), but also what VAT implications might arise for the company as the ‘supplier’ of products etc. to the social media star. Alternatively, you might need to help the company assess whether the social media influencer has become a deemed employee or not.

As with the VAT position for the social media influencer, care needs to be taken when advising companies about the VAT position, as the final position will depend upon the exact facts and circumstances of any particular arrangement. For example:

• In certain limited cases, where the products gifted to the social media influencer have a cost price of under £50 over a 12 month period, there could be no VAT charge for the supplier; or
• At the other extreme, one could find that the supplier is obliged to account for VAT on the normal retail cost of the cost of the product / service provided because of the ‘contractual arrangements’ (deemed or regular) which exist between the parties; or
• Even where it may be possible to argue that there is no deemed contract between the parties, the supplier would (assuming the £50 threshold in a 12 month period has been exceeded), still be obliged to account for VAT on any actual physical goods provided though in this case, the VAT would only be due on the actual cost of the goods provided rather than their formal market value.

Overall, when dealing with social media influencers (or indeed, the companies which use these personalities), it is important for advisors to dig into the detail of the actual arrangements which exist rather than just assuming there is a ‘one size fits all answer’. Even looking at these arrangements at the most simple level, the reality is that social media personalities could be just hobbyists, genuine self-employed people involved in a trade or deemed employees of the brands that they promote.

Would you like to know more?

As this is a complex area and something which HMRC is increasingly interested in, those social influencers who are receiving such benefits – or indeed, the companies providing them with payments or products – should look at contacting their regular Blick Rothenberg contact or Robert Salter using the form below.

Originally published in AT Magazine March/April 2024 – Reproduced with kind permission