The UK tax system remains a complex system as it is. With the emergence of new industries, and different ways to make money, the role of social media influencers is confusing. This is especially so when it comes to tax. A conundrum of paid ads, sponsorships, and free gifts can provide many grey areas in disclosing and reporting.
Social media influencers are defined as people who’ve built a reputation for their knowledge and expertise on a specific topic. This is through the medium of social media. Also known as content creators, these people have access to a large audience. This means they can share information to persuade others through their exposure and following. This is usually through platforms such as Instagram, Facebook, TikTok, Twitter, and YouTube. Social media influencers commonly partner with brands to promote products or services to followers. In exchange, they often receive monetary compensation, free products, or discounts.
We break down the tax implications for influencers, why HMRC and CMA are beginning to clamp down, and how Nordens can help…
Do Social Media Influencers Need To Pay Tax?
In the UK, social media influencers are required to pay tax on their income just like any other individual. This includes income from sponsored posts, brand collaborations, and other forms of advertising on social media platforms. Any income earned by social media influencers is generally considered to be self-employment income and is subject to self-employment taxes. This means that influencers are required to report their income and pay National Insurance Contributions (NICs) on it.
If an influencer’s income from social media activities is their only source of income, they’ll need to register as self-employed with HMRC. They must then file a self-assessment tax return each year. They will also be required to pay NICs as a self-employed individual. It’s important for social media influencers to keep accurate records of their income and expenses. This is because they will need to provide this information to HMRC when filing their tax return.
Do Social Media Influencers Need to Declare Free Gifts or Products?
According to the ICAEW, if an influencer receives a product in exchange for exposure, the tax treatment is determined by consideration given by the influencer. Their employment status also comes into considerarion. If the influencer is employed and receives the gift by reason of employment, the gift is assessable under the Income Tax (Earnings and Pensions) Act 2003.
Should the services or products be simply given in exchange for an influencer endorsing them and are not received by reason of the influencer’s employment, the tax treatment remains murky. If the influencer is classed as trading, they’ll be taxed as if the transaction was a barter transaction.
Moreover, even if the influencer isn’t necessarily trading, there’s a high chance that the products/services received are not gratuitous. This means they are likely to be taxable. As well as this, if the influencer has formally requested a product, it’s less likely to be gratuitous. As a result, this is likely to be taxed. Should a self-employed influencer receive a gift without an agreement to post a review or picture, yet subsequently posts about it, it’s even more confusing. It’s likely this is to be disclosed as a ‘paid advert’ under CMA (Competition & Markets Authority) rules.
Due to the many grey and confusing areas around what is determined as ‘paid ads’ or ‘sponsored posts’, In November 2022 the CMA published guidance for tackling hidden ads on social media for platforms.
How Can Nordens Assist Content Creators With Their Tax?
We know tax can be complicated. This is particularly so if you’re a social media influencer where the rules on tax are somewhat cloudy. Our expert Tax team will meticulously go through all of your professional work and financial information. They will then determine the exact records of what is to be disclosed to HMRC and why.
Furthermore, expenses directly related to social media activities, such as purchasing equipment or travel, may be deductible for tax purposes. This can further benefit the influencer when disclosed. Accurately reporting all income and expenses is something we are passionate about at Nordens. We’ll also help educate you on the complexities of the tax system relative to your work. By assisting you, this will prove to make life that little bit easier.
We’ll help you to identify a streamlined process of how to file all expenses and earnings. This will give you the peace of mind that everything is covered and safeguarded. If this sounds of interest then please get in touch with our Tax Manager, Adam Truluck, at email@example.com.
We hope this has outlined to you the tax implications of social media influencers and how Nordens can help with the whole process. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.