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Influencers are not immune from tax

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Individuals who blag free products or services for their own consumption should declare and pay tax on the value of those items, as Tom Minnikin explains.

11th Aug 2023
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According to the Influencer Marketing Hub, an influencer is a person who has the power to affect the purchasing decisions of others because of his or her authority, knowledge, position, or relationship with his or her audience.

Stories of self-styled influencers asking for free gifts in return for promotion of the product or service abound, but this approach doesn’t always work. 

For example, last week a PR company claiming to represent a ‘well-known celebrity’ emailed the Three Little Birds Bakery in Keighley and requested production of a birthday cake, one hundred cupcakes, and an additional special cake. However, the PR firm explained that “Payment would be in the form of ‘promotion on their socials’ … as well as in OK! Magazine”.

The Bakery owner was not impressed and responded: “Thanks so much for the email. I’m so sorry to hear that your client has fallen on such hard times that they can’t afford to pay small businesses for their products. Unfortunately, as my mortgage provider doesn’t take payment in the form of ‘promotion on their socials’ and my staff can’t feed their kids with exposure on Instagram, I’ll have to decline your very generous offer.”

The small business owner went on to post the exchange on her own social media, which went viral, and was picked up by a national newspaper. The result was the bakery got its media coverage, and the celebrity concerned declared she had no knowledge of the PR company’s actions.

Taxation of influencers

Can social media ‘influencers’ receive this sort of payment-in-kind for effectively endorsing products without suffering tax consequences? HMRC doesn’t think so. In January it embarked on a crackdown by sending nudge letters to online sellers and influencers for tax they may owe on undeclared sales.

Is there a taxable trade?

In some cases, it will be easy to identify whether a social media influencer is carrying on a taxable activity. For example, if an individual is receiving regular income from paid-for posts, brand collaborations and other forms of social media advertising then the chances are they will be viewed as trading and will therefore be subject to income tax and national insurance contributions (NIC) on the profit they make as a sole trader. 

In cases where there is significant control exerted by the sponsor there is also a risk that the individual would be viewed as an employee, in which case IR35 rules would apply.

Taxable gifts

The tax treatment of ‘freebies’ is more ambiguous, but it generally depends on what consideration is being given by the influencer.

Clearly, if the person is classed as an employee, then the ‘gift’ would be taxable as earnings.

For influencers that carry on promotional activity as a sole trader then the receipt of a free item, even though badged as a gift, is more likely to be seen as a barter transaction (ie, turnover for their marketing business). Barter transactions are taxable and may also be subject to VAT if the individual is making annual supplies in excess of the VAT registration threshold.

Even if the influencer isn’t carrying on a ‘trade’ there is still a high chance that HMRC will not see the receipt of the product as a gift. This is particularly the case if the person involved requested the item in the first place in return for services.

Forbes Dawson’s view

The emergence of new industries like social media influencing create interesting questions when it comes to tax and as Milton Friedman once said, “there’s no such thing as a free lunch”. 

Those that operate in the digital space need to consider whether their promotional activities amount to a trade – whether paid in cash or in kind. These influencers are likely to be seen as ‘low hanging fruit’ by HMRC on the basis that (by definition) all their affairs are on very public view.

For example, if an influencer was seen using their platform to sing the praises of a particular travel company while on one of its holidays, HMRC’s working assumption may be that they had been paid in kind for social media services.

These issues are not just restricted to influencers as barter transactions do come up in all kinds of other industries.

Replies (14)

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By Hugo Fair
11th Aug 2023 21:02

Not exactly news is it ... except to most of the 'influencers', who are however exceedingly unlikely to be reading here (or in most cases even to have an accountant).

And the problem lies in the question asked: "Can social media ‘influencers’ receive this sort of payment-in-kind for effectively endorsing products without suffering tax consequences?"
... because the answer is Yes!
Do they incur tax liabilities? Indubitably.
But suffer the consequences? Most unlikely.

It may not be particularly hard to show the liability (although it does take resources/effort) ONCE you have the parasite (sorry 'influencer') pinned on your microscope slide ... but it's like midges swarming round you in summer - there are so many and a squashed one is instantly replaced.

HMRC's greatest hit-rate (which is pitifully low) here revolves around the 'Al Capone' approach ... get them for something else (typically transforming their misbegotten goodies into cash via eBay but 'forgetting to declare this as income') AND then hit 'em with the old double-whammy!

But it's like trying to fight your way out of a snowstorm by licking each snowflake you can reach ... fun maybe (and briefly), but practicably a fruitless task.

If you want a 'solution' (which may not work if there aren't first mass lobotomies on those who feed the influencers by 'following' them), then you need new legislation that tackles the tax issue at source ... charge the donor/promoter companies a withholding tax (which they can choose either to swallow themselves or to charge on to their customers - the influencers)!

Thanks (20)
Dave Chaplin
By Dave Chaplin
14th Aug 2023 10:05

Difficult to see how IR35 would apply to an influencer. Clearly in business on their own account, and has ultimate authority over what they plug and what they don't, and what they say in their SM accounts. Hardly a role with a job title with hours for skills.

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By Rgab1947
14th Aug 2023 10:11

The very few influencers I have seen do not strike me as the most blessed with intelligence. So taxes, what is that etc.

Good luck to HMRC.

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By JustAnotherUser
14th Aug 2023 10:15

Its a very simple case if person A asks for Free Cake, makes a video and uses the correct #AD to highlight a PIK.

Genuine question (and example)

Influencer (A) has a birthday coming up.
Their manager (B) asks (who is paid a % income and salary)
Production company (C) to hire (paid flat fees for services)
Events Company (D) to throw a party. (paid £100k for the party)
The entire thing is filmed by (A) for second company (E) and the video is posted to YouTube where videos revenue falls under company (F).

Depending who asked for the cake who pays the tax?

I suppose what I'm getting at here is that even moderately successful people on any of these web 2 platforms have growing complex structures and agreements, the real answer is they would just pay for the cake properly.

But even in this example, Catherine Tyldesley did not ask for the cake. I will take a guess as I cant find all the details...
(A) has a birthday.
(B) PR company is throwing a surprise so ask for free Cake.
(A) has company (C) who pay (B) annual PR fees.
(B) uses payment from (C) to throw party
(A) provides exposure but due to company structure the fees generated from Instagram which include the #AD from free cake go to company (D).

I assume it is the PR firm who received the payment in kind? They reduced their cost to throw the party, and in turn profits by using (A) platform?

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By ds
14th Aug 2023 11:06

Are the products gifted to the Influencers merely trade samples?
The producer would make them at marginal cost and send them on the basis of return or dispose of when of no further use. As the cost of return is likely to be higher than the items, especially in the case of cakes, the influencer has the choice of how they dispose of the trade samples.

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By hwillia2
14th Aug 2023 12:34

Interested to read the comment on "free" holidays being taxable on the recipient. Would this apply to journalists (freelance or salaried) who contact a holiday company for a gratis holiday and then write about it in the travel supplement of a newspaper?

And separately, how do they differ from Hugo Fair's "parasites"?

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Replying to hwillia2:
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By Hugo Fair
14th Aug 2023 13:05

I'd have thought the final couple of paras in the article are rather clear ...
"For example, if an influencer was seen using their platform to sing the praises of a particular travel company while on one of its holidays, HMRC’s working assumption may be that they had been paid in kind for social media services.
These issues are not just restricted to influencers as barter transactions do come up in all kinds of other industries."

How your journalist differs from a parasite is ultimately in the eye of the beholder (mine being that it is not parasitical, albeit not exactly a beacon of probity, merely to write advertising copy - but anything that tries to hide that aspect, like some advertorial on this site, is beneath contempt).

And their tax position? That'll depend on the exact circumstances - with, as you've identified, the freelancer tending to be on dodgier ground than the employee.

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By nick farrow
14th Aug 2023 12:34

At least a couple of influencer clients make decent money (well over the VAT threshold) from their activities and are very conscientious about getting their taxes right. Their clients (via specialist agency) are global brands who want to safe money on other advertising methods or just reach a wider audience. Where occasionally the influencers are provided with goods rather than (or in addition) to cash then I think this is a barter transaction where the value to attribute to the goods (for both VAT and income tax) is marginal cost (pepper v hart principle)

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By JustAnotherUser
14th Aug 2023 13:27

so many miss-informed comments here about 'influencers' when ironically the person the article centres around is an actor, not influencer.

An example for those that still watch old-media and may think influencers are are fad of some sort.

Weekly top TV show in the UK recently was 'The Sixth Commandment' BBC with 5.2 million viewers (all channels and VOD)

The 100th largest youtubers in the UK gets +2,792,584 views daily. Number 1 UK is getting +28,219,455. Or one of the leaders such as Mr beast getting 50m views daily.

Catherine Tyldesley, who's PR team through they could get free cake is ranked 64,642nd by social platform social blade's algorithm , 206,956th for following and 7,636,367th for engagement.

The deal here is that no self-respecting, or anyone even with mediocre success in socials asks for free cake, they simply make enough money to just pay or wait for handouts / sponsors.

Take one of the most successful on YouTube LTT (who is still only in the top 5000 globally), who openly shared their ARR summary as...
15% merch
11% affiliate link payments
26% direct revenue from their YouTube adverts
27% in-video sponsors
14% projects
This, for a youtuber who employs 100+ people.

A new study finds that in 2022 YouTube's creator ecosystem contribute more than $35 billion to U.S. GDP and supported over 390,000 full time jobs

Here's a study by adobe if you want to learn more https://s23.q4cdn.com/979560357/files/Adobe-'Future-of-Creativity'-Study_Creators-in-the-Creator-Economy.pdf

These are your next customers as accountants, not...
-however exceedingly unlikely to be reading here or parasites
-do not strike me as the most blessed with intelligence

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Replying to JustAnotherUser:
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By nick farrow
14th Aug 2023 17:00

I agree with you and they could easily be reading this as their parents are accountants!

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By CoxE
14th Aug 2023 16:00

Interesting though basically logical and HMRC's approach is of course totally predictable.

Extending the thought process somewhat however, and moving away from the notion of an "influencer" as someone effectively looking to sell their ability to influence a market, what about the countless bloggers who just by way of example, perhaps broadcast Youtube videos of their stealth camping escapades?

Access to their output is free and, although there may well be an invitation to buy the perpetrator a "coffee", there is clearly no obligation whatever, so there is a case for perceiving such donations a gifts.

Clearly scale would potentially influence this interpretation but to get down to the basic badges of trade, what is the blogger's motivation? It could very reasonably be argued that it (whatever it might be) is his/her pass-time, and that the activity goes ahead and continues regardless of whether there is any audience or more to the point, regardless of whether or not, such audience as there may be, chooses to contribute a coffee or nothing.

At the same time, it is not difficult to imagine that certain of these performers might over time, attract a very wide audience of enthusiastic and generous coffee-doners, in which case the vexed question of where to draw the line, as between incidental income generated by a hobby, and the income of a trade, would no doubt need to be considered.

Ant thought anyone?

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Replying to CoxE:
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By Hugo Fair
14th Aug 2023 17:06

For what is "coffee" (I note the quotes) a euphemism?

If it's a solicited cash 'donation' (like the old street beggar's 'give us your change for a cuppa coffee guv'), then it's declarable (and taxable) income ... dependent only as you say on (possibly) intent and (practically) quantum.

But to revert to the original topic, I'm led to believe that no-one calling themself an influencer would undertake their influencing activities other than for rewards - since, aside of anything else, to do so would dilute their currency.

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By AndrewV12
15th Aug 2023 08:54

‘well-known celebrity’

I think that's code for a Z lister

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By EddieReddy
15th Aug 2023 12:04

I'm pretty sure most successful influencers whose level of income would be of interest to HMRC would have accountants to sort all this out, their earnings are staggering when you see the figures. Are the low level influencers and Z list celebrities who receive the odd promo gift or kickback for promoting something really worth the resources it would take to find them?

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