In the last decade, online influencers have blazed a trail for a new kind of entrepreneur, constructing a lucrative industry from a down-time hobby. Included under this ‘influencer’ umbrella is a wide range of disciplines, namely bloggers, vloggers, fitness gurus, how-to crafters and everything in between. Social media channels such as Instagram and TikTok have catapulted many to dizzying heights of internet fame, but should they be paying influencer tax?
Each year in the UK alone, thousands of people earn revenue from their content and online influence. This stream can often come from gaining large swaths of followers, subscribers or views, which is subsequently monetised by the creator through ads or brand collaborations. These partnerships between influencers and brands work to strike a balance between organic and ‘paid’ content (which has now been made compulsory to mark on certain social media platforms, typically with a ‘#ad’).
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, alongside the sharp rise in ecommerce, micro-influencers are more frequently finding paid opportunities, as businesses seek online creators with a following to suit their niche.
As more and more of these influencers begin to earn a living through online content, the question of tax is being increasingly raised. It’s important to consider if your online content creation operates like a business, and if it does, whether you are required to comply with any tax obligations that apply to you.
When asked to promote brand products or services, influencers will most likely market through:
- Paid posts (often copy for these will be written by the company themselves)
- Product reviews or endorsements
- Or gifted products that the influencers may choose to talk about
Each of these occurrences has varying tax treatments and brings with them some factors that you may need to consider when deciding your obligations as an online influencer, these factors are as follows:
Self-Employment Status
Throughout the EU it is stated that any person who habitually carries out a business or professional activity must register as a self-employed worker, however this goes on a case-by-case basis, as the online influencer landscape develops.
The recommendation here is to calculate and keep records of what income is being obtained so you can work out exactly what you may potentially owe in terms of VAT. Registering as self-employed also means you can claim certain expenses for your daily work and so reduce your taxable income. These expenses may be:
- Equipment
- Travel
- Phone bills
- Website/marketing costs
Payments-In-Kind
As mentioned previously, online influencers are required to provide advertorial transparency so that their audiences can distinguish between what is and isn’t paid content. On some prior occasions recording influencer’s income has been made very difficult as some social media creators have not declared when and how much they have been paid or gifted to endorse products or services.
This is where ‘payments-in-kind‘ create a grey area which makes taxation complex. This just means when an influencer is gifted a product or service in return for promotions. You are legally required to declare the financial value of items you receive if this item can be converted into money – as this is a taxable supply. If, however, the item cannot be converted, you won’t be charged an influencer tax on these in most circumstances.
Trading or Non-Trading
To date the guiding line between a trading and non-trading influencer is unclear. This mainly refers to whether the individual is creating content online on a casual basis or is doing this for revenue and as a career.
Guidance for authors may be useful in this case – an author who:
- organises their time to regularly write, producing work that has commercial value, and
- pairs this with a clear and persistent effort to market their work for financial benefit
is operating as an author by profession and would be eligible for taxation.
Potential actions that could trigger VAT
When using your influencer status to sell goods e.g., 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:
- Where you sell from
- What platform you use to sell
- 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 – we have lots of resources which can help you understand your VAT liability when selling on a website, selling high value goods, or can help you find answers to questions you may have. Equally, if you would like to speak to our team directly about selling goods or services online as an influencer, get in touch with us.
When 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 that domestic government. When being paid for sponsored posts as an online 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 pay the correct amount of VAT according to your income bracket.
When 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 influencer tax on this.
When 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.
The emerging convergence of online influencers and taxation has created an unknown area where both businesses and social media creators will need to be careful and consider their tax obligations. At SimplyVAT.com we’re here to help you understand when and where you may trigger a taxation requirement and can assist you in setting this up so you can continue nurturing your following and influencing the masses!
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At SimplyVAT.com our international experts are always happy to help you navigate international VAT and are always at hand to answer your questions. If you’re unsure of your international VAT obligations, or would like to get VAT registered, fill out the form below and a member of the team will be in touch.
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