As the social media industry develops, it is important that influencers are aware of their tax liabilities, writes Anna Tragotsi
Remember the days when one had to pack one’s hopes and dreams in a duffle bag and trek to Hollywood to become rich and famous?
Those days are now a distant memory. From Huda Kattan to Chiara Ferragni, there has been an explosion of ‘influencers’ in the past decade – individuals capable of capturing the attention of millions of people and the glamour and wealth associated with such popularity from the comfort of their phones.
According to Business Insider, with influencer marketing projected to become a $15 billion business by the year 2022, how are these media-savvy entrepreneurs being taxed?
Influencers are in a class of a growing number of entrepreneurs who are building businesses with multimillion-dollar revenues through Instagram marketing.
Take fitness influencer Grace Beverley as an example.
The 22-year-old Oxford University graduate began an Instagram account and YouTube channel of workout videos while at university. The influencer now boasts more than 1 million followers on Instagram alone, and has turned her following into not one or two, but three multimillion-dollar businesses.
Most successful influencers start as bloggers that share their thoughts with the general public usually by posting pictures and videos of themselves. The more followers the influencer attracts, the more attention their social media platform receives from brands.
Such brands are willing to pay vast amounts of money for the influencers to use their specific products and post their endorsements. These substantial sums paid by the brands are in essence how influencers generate income.
Depending on circumstances, the income that is generated from activities such as partnering with brands can be considered a trade for UK tax purposes and may, therefore, be subject to UK income taxes of up to 45 per cent depending on the level of profits made by the social media influencer. National Insurance contributions are also then due under Class 2 and Class 4.
While it may be fairly obvious how sponsored content is taxed, questions arise when it comes to benefits ‘in kind’. Such benefits are where products or experiences have been given to the influencer (let’s say a free all-inclusive trip to the Bahamas) in return for contracted deliverables.
The monetary value of a trip to the Bahamas, needs to be accounted for in the influencer’s annual tax return. Tax is paid on the value of the benefit. HMRC defines this as the cash equivalent value and it is usually the amount it costs the brand to provide the benefit.
Lucky for the influencers, when they receive complete freebies in their PO box without their knowledge and no contractual arrangement or obligation to deliver content (so the influencer is not ‘trading’), these ‘voluntary gifts’ are potentially tax-free.
But HMRC will look at each case individually, and influencers should be aware that the HMRC manuals provide “voluntary payments designed in some way to augment the consideration payable for goods or services whether past, present or future, are taxable”.
With posts in trendy designer outfits and exotic backdrops, the influencer lifestyle is capable of capturing the attention of millions of people from all around the world. However, as the industry develops, it is very important that influencers are aware of their tax liabilities especially when their greatest follower is the tax man. There really is no such thing as a free lunch….