Do Influencers Pay Tax?
In recent years, social media influencers and online creators, have become increasingly prevalent in the UK. What do we mean by influencers or online creators? In the social media sense, it’s someone who has the power to influence their (usually substantial and loyal) following to act in a certain way when encouraged. Influencers can specialise in a whole range of activities, from sharing make-up or fashion tips to reviewing software. Often these people are given money to endorse certain items or are given free items to review.
But how do these influencers pay tax on their earnings, and what are the rules and regulations that govern this process?
Firstly, it's important to note that anyone who earns an income in the UK is subject to taxation, regardless of their profession or source of income. This means that social media influencers are no exception and must pay taxes on their earnings in the same way as any other individual.
If a social media influencer receives more than £1,000 in income during a tax year, they must declare it on a Self-Assessment Tax Return. Some people believe that they don’t have to declare income if they earn less than the annual tax-free allowance of £12,570 per year. This is not the case. If an influencer fails to fill in a tax return, they may likely face penalties, even if they don’t own any tax. The bottom line is if you’re earning more than £1,000 online or think you will register for Self-Assessment.
Influencers must then declare their earnings from all sources, including any brand deals, sponsored posts, and affiliate marketing. These earnings are subject to income tax, which is charged at different rates depending on the amount earned. For the tax year 2022-23, the rates are as follows:
- Up to £12,570: 0%
- £12,571 to £50,270: 20%
- £50,271 to £150,000: 40%
- Over £150,000: 45%
In addition to income tax, influencers may also be liable for National Insurance contributions. These contributions are a way of funding state benefits, such as the state pension, and are calculated based on the level of earnings. For the tax year 2022-23, the rates are:
- 9% on earnings between £9,568 and £50,270
- 2% on earnings over £50,270
Do influencers pay tax on gifts?
This is where it gets tricky. A payment-in-kind is a payment in return for a service or goods that aren’t cash. This is where it’s a good idea to get advice from a professional, such as us!
Social media influencers can receive all sorts of freebies in return for their endorsement, this can be anything from clothes and shoes through to mobile phones and watches. Whether an influencer pays tax on these items depends on whether HMRC deems them to be ‘trading’. What ‘trading’ means isn’t very clearly defined. However, ICAEW points to the guidance that applies to professional writers. Writers are deemed to be trading if they:
- Organise their life so as to regularly spend time on their writing to produce work which has a commercial value
- Combine this with persistent and systematic marketing of the work for their own financial benefit.
If you apply the same principles to social media influencers, then those who devote a lot of time to creating and promoting their content will be considered trading.
This means that an influencer who falls into this category may need to declare certain gifts they receive as a ‘barter transaction’. This applies to gifts that can be converted into money or something of direct monetary value. For example, a new mobile phone would fall into this category. However, if an influencer received a non-transferable holiday, the fact that it’s non-transferable means it can’t be converted into cash. Therefore, it does not have to include in trading profits.
There are always expenses that can be claimed. It's worth pointing out that influencers can also claim certain expenses against their earnings to reduce their tax bill. These might include expenses such as equipment costs (e.g. camera equipment, editing software), travel expenses, and office costs (e.g. internet and phone bills). However, it's important to keep detailed records of all expenses and to ensure that they are directly related to the influencer's work.
Overall, paying taxes as a social media influencer in the UK is no different to paying taxes in any other profession. However, it's important to stay on top of tax obligations and to seek professional advice if necessary. By doing so, influencers can ensure that they are meeting their legal obligations and avoiding any potential penalties or fines.