As the cost-of-living continues to rise and tax allowances and bands remain frozen, many individuals are facing higher tax bills. As a result, more people may be tempted to explore additional streams of income such as social media influencing, which can benefit from the trading and miscellaneous income allowance, meaning that up to £1,000 of income can be received free of income tax.
In some cases, earnings may be low, take for example TikTok – which has cemented its popularity among younger internet users – whose influencers have reported earning between $0.02 and $0.04 for every one thousand views through their creator fund. However, they may receive gifts and freebies in addition to this, which is where some could get tripped up.
The various freebies that social media influencers receive are clear for HMRC to see online and may well be taxable. Given the level of income some influencers achieve, and the increasing number of influencers who are earning at a more modest level, HMRC is turning its attention to an easy target. After all, the nature of influencing is that activities, and hence many receipts, are made public.
What income is taxable?
Many influencers receive gifts either as a ‘thank you’ for endorsing products, or as encouragement to do so. Where there is a contract for these gifts it is pretty clear they are a source of income. Where there is no contract, a gift may be gratuitous if the influencer is not trading, or if they do not use or endorse it, but it may become taxable once an endorsement is made. The amount taxable would most commonly be the value of the gift.
They may also have other income flows such as conventional advertising revenues, subscription services and payments for appearances. These are generally received in cash, so are easier to value, although cryptocurrencies may be used which will add complications.
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What expenses are deductible?
Fortunately, if an influencer is trading, they are entitled to deductions for expenses wholly and exclusively for the purposes of their business. Items such as the costs of running their website, various social media feeds, travel, equipment and assistance will be deductible. If there is a duality of purpose where the expense relates to both personal and business use, only a proportion of the expenses, if any, may be allowed.
What to do now?
The main concern for influencers where their taxable income is made up of gifts will be cashflow. HMRC will expect a cash payment, so even cryptocurrencies may not be a good place to keep your tax reserve.
Any influencer who falls liable to tax would be wise to prepare their tax returns early so they can quantify their upcoming liabilities and have plenty of time to ensure tax payments can be made when they are due. You cannot pay HMRC with a holiday in a resort, or a cryptocurrency which has radically fallen in value.
Most businesses at least have the advantage that their income is in cash, which makes settling tax liabilities simpler. For influencers that often receive payment in kind, calculating tax liabilities and ensuring they have the cash to pay them may require much more planning.