How gifts to influencers are taxed
Some time ago we wrote about the tax treatment of social influencers. There has been a lot of focus recently in the media about social influencers and gifts so we've decided to revisit how gifts to influencers are taxed.
The rise of social media has given birth to a new breed of digital celebrities known as social media influencers. These individuals have amassed substantial followings on platforms such as Instagram, YouTube, TikTok, and Twitter. They effectively turn their online presence into a business.
As their influence has grown, exponentially so have the opportunities for collaboration and receiving gifts from brands and followers. It's therefore no surprise that HMRC wrote to 1,000's of social media influencers recently, to remind them of their reporting obligations.
Gifts to influencers generally
Gifts to influencers can come in a variety of forms, from physical products (e.g cakes!) and experiences to monetary contributions. These gifts serve a number of functions. They could be promotional tools for brands seeking exposure to the influencer's followers, tokens of appreciation from followers, or simply gestures of goodwill.
When determining how gifts to influencers are taxed, it might be obvious they are carrying on a taxable activity - particularly when you apply the badges of trade. For example, if you receive income from paid-for posts, brand collaborations and other forms of social media advertising then you'll be regarded as carrying out a trade.
If that's the case, you'll therefore be subject to income tax and national insurance contributions (NIC) on any profit you make as a sole trader or corporation tax if you carry out this activity as a limited company.
What's HMRC's view on how gifts to influencers are taxed?
HMRC acknowledge in their own guidance that it can be difficult to determine whether a gift is a taxable receipt, Generally speaking, HMRC consider gifts to be taxable in the following circumstances:
Do HMRC recognise any any form of exemption?
HMRC recognise that not all gifts have a significant monetary value. The "de minimis" exemption means that minor gifts of low value, often are not taxable. However, it's important to note that this exemption has a monetary limit (usually around £50) and doesn't apply to gifts provided in the course of business.
What about payments in crypto?
The same principles mentioned above apply to gifts if you receive them in the form of cryptocurrency. You will potentially be taxed on the £sterling equivalent of the cryptocurrency when received.
Practical considerations
If you are an influencer who has received gifts that might be considered taxable trading income, you are responsible for reporting these gifts on your tax return. This ensures you have proper transparency with HMRC. It also avoids any potential penalties for non-compliance. If you are an influencer, you should therefore maintain clear records of all gifts received, including their nature, value, and the context in which they were received.
If you're a business (for example a bakery!) collaborating with an influencer you'll need to be aware of the tax implications of gifting. If a gift is deemed to be taxable income for an influencer, conversely the value of the gift may also be considered a tax deductible expense for your business.
Summary
The evolving landscape of social media influencers and their collaborations with businesses presents new tax issues. If you're an influencer, it's essential to differentiate between gifts received as tokens of appreciation and those received in connection with your business. Clear record-keeping and proper reporting are key to navigating your reporting obligations with HMRC effectively. Whereas if you're a business working with an influencer, you'll need to be aware of the potential tax implications of any gifts made and claim tax relief where appropriate.
For more useful information, check out our Ebooks here.
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].
Alternatively, please feel free to complete our Business Questionnaire here.