In the last decade, social media influencers have blazed a trail for a new kind of entrepreneur, constructing a lucrative industry from a down-time hobby. Under this ‘influencer’ umbrella, a wide range of disciplines are included. From recipe bloggers to family vloggers, fitness gurus and everything in between. Platforms such as Instagram and TikTok have catapulted many to dizzying heights of internet fame. But is there an influencer tax?
How do Influencers earn taxable income?
Each year in the UK alone, thousands of people earn an income from their content and influence. This revenue comes from monetising their following, big or small.
It’s widely known that Influencers are asked to promote brands and products. However, those deals are only one source of taxable income. Influencers make money through:
- – Advertising Revenue
- – Brand Collaborations
- – Gifted products that influencers may choose to talk about
- – Selling Merchandise
Each of these occurrences is taxed differently, and different factors determine what your responsibilities are.
Advertising Revenue
For influencers big enough, most social platforms run some sort of revenue-sharing scheme. Companies will buy adverts on the platform, and the platform will run the ads alongside the creator’s content. Influencers will then receive a portion of the advertising revenue. The amount and how it’s calculated varies wildly from platform to platform.
Brand Collaborations
Businesses can also directly partner with influencers. Paid partnerships or ‘Brand collaborations’ usually look like an influencer being paid to promote a product directly. Paid partnerships tend to be where the real money is, but influencers have to strike the right balance between sponsored content and the content their fans follow them for.
In previous years these online collaborations and sponsorships were reserved for celebrities, earning stars upwards of £500,000 for a single post or video. Today, however, micro-influencers are more frequently finding paid opportunities. The rise of ecommerce has brought with it a wave of businesses looking for online creators with a following to suit their niche. Online influencers are required to provide advertorial transparency so that their audiences can distinguish between what is and isn’t paid content.
Gifted Products
Sending an influencer your product in the hope that they’ll talk about it has been a viable marketing tactic for decades. Larger content creators get bombarded with requests for this kind of deal, as the exposure can change the trajectory of your business over night. For bigger brands, it’s considered a low-cost way to advertise products.
Selling Merchandise
Merchandise is a little more complicated to do, but can be a more consistent form of income. The margins are also much better. For example, it takes roughly 10,000 people to stream a song on Spotify for an artist to make as much as if they had sold one physical album.
Do Influencers need to pay tax?
As more influencers begin to earn a living through online content, the question of tax is becoming more common. It’s important to consider if your online content creation operates like a business. If it does, what tax obligations do you have?
The easiest place to start is with merchandise. Depending on how you’re selling your merch, and where your customers are, you’ll likely have to pay VAT. For the other types of income, things get a little more complicated.
The first question you need to answer is whether you are “trading” or not. If it’s just a hobby and not a trade, you might not have to pay any tax. In UK law, the definition “trade” is very loosely defined: “Broadly, ‘trade’ can be taken to refer to operations of a commercial kind by which the trader provides to customers for reward some kind of goods or services.” The guidance for authors may be a useful example in this case. Authors are considered trading if they:
- – Organise their time to regularly write, producing work that has commercial value
- – Pairs this with a clear and persistent effort to market their work for financial benefit
- – Operate as an author by profession and would be eligible for taxation
Self-Employment Status
In the UK, a self-employed person is a person who “run their business for themselves and take responsibility for its success or failure.” You’re required to register for self-assessment if you earn more than £1000 from sources other than employment in a financial year. Once you’re registered, you’ll need to file a self-assessment tax return once a year.
If you’re self-employed you need to keep records of what income you’re earning. These records will help you work out what taxes you owe, and if you need to register for VAT.
Registering as self-employed also means you can claim certain expenditures as expenses. Travel expenses and business expenses can both reduce your taxable income. These expenses might be:
- – Equipment
- – Flights
- – Phone Bills
- – Website Costs
- – Marketing Fees
- – Payments-in-Kind
Payments-in-kind creates a grey area which makes working out who owes what more complicated. A payment-in-kind is when you’re paid with a product or service instead of money. It’s common with influencers who are paid to promote a product with the product.
You are legally required to declare the financial value of any goods you receive if this item can be converted into money. That’s because it’s considered a ‘taxable supply’. If you wouldn’t be able to convert it into money, you’re unlikely to be charged an ‘influencer tax’ on the product.
Actions that could trigger VAT
Influencers working the EU and UK or with fans in Europe will probably have to deal with VAT at some point. It’s our specialty so let’s look at how that might happen and what you need to do when it does.
Using Your Influencer Status to Sell Goods (like merchandise or digital services):
If you use your online influence to sell physical goods or services, this could create a taxable supply. It will depend on:
- – What country you sell from
- – What platform you sell them on
- – Where your customers are based
- – The value of your supplies
There are lots of variables that could create a compliance obligation for you while selling online. Online marketplaces like Etsy have to handle the VAT for you but charge you a fee to sell. If you sell your merch on a website you own, you’ll be responsible for any VAT obligations but can avoid the platform fee.
Being Paid to Post
In the UK and EU most businesses will be required to register for VAT after they pass a certain threshold set by the government. When being paid for sponsored posts as a social media influencer, you will need to be aware of the threshold in your country and whether your annual income exceeds this amount. If it does, you will need to calculate and charge the correct amount of VAT on your services, then pay that amount to the government.
Reviewing Products
If you are sent products or services to review online, taxation will be determined by whether the gift can or can’t be converted into cash. This is called a barter transaction which means that any non-monetary form of trading income is taxable in the same way that typical monetary income is. However, as mentioned previously, if this non-monetary income cannot be transferred to cash, you would not be required to pay an “influencer tax” on this.
Receiving Free Gifts for Optional Promotions
If you receive a gift from a brand and you are contractually obliged to post an ad on their behalf and you accept it, this will make the gift taxable. However, if you aren’t contracted to do so, this would just be deemed a gift and would not be taxable.
So, do Influencers Pay Tax?
The short answer is “it depends”. How your income is generated and how you structure your business will make a difference to what kinds of tax you’ll have to pay. The best approach is to be proactive and take advice before problems arise. You have the time to do your research. There are income thresholds you have to reach. In some cases – like with Corporation tax – there are some major decisions you have to make before the taxes apply.
This article was originally published on March 23rd, 2022 and has been updated for comprehensiveness.
