Dive into the world of PAYE investigations. Uncover the facts, implications, and insights in this informative blog
Over the past ten years, online influencers have become more prevalent than ever before. Essentially, they are trailblazing the way for a completely different type of entrepreneur, and have constructed an extremely lucrative sector from what was once only a hobby.
The “influencer” umbrella comprises a broad spectrum of different disciplines from vloggers and bloggers to how-to crafters and fitness gurus among others. Social media platforms like TikTok and Instagram have managed to catapult countless individuals to the height of online fame, but do they pay an influencer tax?
In the United Kingdome each year thousands of people are earning revenue from the content they produce online. Often, this stream comes from gaining bands of subscribers, viewers or followers and then from monetising their content via brand collaborations or ads. The partnerships that form between brands and influencers strike the balance between paid and organic content.
At one time, online sponsorships and collaborations were the preserve of celebrities, bringing in over £500,000 for just one video or post. However, today, micro-influencers have begun to find their own paid opportunities, with businesses seeking out online creators who have a following that suits their own niche.
With more influencers than ever before earning their living via the online content they make, questions surrounding tax are increasingly raising their heads. Influencers need to consider whether their content creation is operating in the form of a business and, when it does, whether they must comply with applicable tax obligations.
When influencers are requested to promote the services or products of a brand, they typically market via paid posts, product endorsements or reviews, or gifted products. All of those occurrences come with their own tax treatments which should be considered.
Are Influencers Self-Employed?
Across the entirety of the EU, anyone who is habitually carrying out a professional activity or business is required to register themselves as self-employed. It is recommended that influencers calculate their income and keep records of it so that they can calculate precisely how much VAT they may owe.
By registering themselves as self-employed, they can also claim specific expenses, thus reducing their taxable income such as travel, equipment, telephone bills, and marketing and website costs.
What About Payments In Kind?
These days, online influencers have an obligation to provide transparency regarding their content in order for audiences to be able to distinguish between paid and organic content. In the past, recording an influencer’s income has not been easy since many creators of social media content have failed to declare when they have received money or gifts for endorsing services or products.
Payments in kind are a grey area that makes it difficult to work out tax. However, influencers have a legal requirement to declare the value in financial terms of any item they receive since it is taxable. If an item is unable to converted into financial terms, no tax is chargeable in the majority of cases.
Non-Trading Or Trading
At the present time, it is not always clear when an influencer is trading or non-trading. Primarily, this is a reference to whether an influencer is creating their online content as their job for revenue or only casually.
Any author who is organising their time to allow them to write and produce work regularly with commercial value, and who is pairing this with a persistent and clear effort to market that work to achieve financial gain can be said to be working as an influencer professionally and should therefore be paying tax as income tax and national insurance.
How Could VAT Be Triggered?
If an influencer uses their status in order to sell items such as digital services or merchandise, this supply could be taxable depending on where the goods are sold from, the platform that is being used for the selling, the value of the supplies and where the customers are located.
When selling online, there are many variables that may result in a compliance obligation, and taking professional advice is always wise so that you can better understand your liability for VAT when you sell high value products online.
In the EU and UK, the majority of business are required to make a registration for VAT once they have passed a specific threshold that has been set by their domestic government. If an influencer is paid for making sponsored posts, they must be aware of their country’s threshold and whether or not their annual income will exceed that threshold. In the UK that threshold is £85,000.
In cases where their income from their influencer-related work exceeds the country’s threshold for VAT, they must calculate then pay the appropriate amount.
If an influencer receives services or products for online reviewing purposes, taxation is determined by whether that gift is able to converted into a monetary amount. The official name for this is a “barter transaction”.
That means non-monetary forms of trading income are also taxable just like regular monetary income. In cases where non-monetary income is unable to be transferred into cash, no influencer tax will be levied on the amount.
If an influencer receives a gift from a specific brand, accepts that gift, and then has a contractual obligation to post an advert on the behalf of the brand, the gift will then become taxable. If there is no contractual obligation in place, however, the item is deemed to only be a gift, with no taxation being levied on the item.
As online influencers become more prominent, a grey area has arisen in the field of taxation. As a result, both content creators and businesses alike will have to take extra care to consider all of their taxation obligations thoroughly.
Taking advice from an accountancy professional is vital for all influencers so that they can develop an in-depth understanding of where taxation requirements may be triggered.
A professional accountant can also help in setting up arrangements to deal with paying this tax so that the influencer can carry on nurturing their following and doing what they do best – influencing others.