Tax tips for online influencers
We've covered some tax aspects of being an online e-commerce business in previous articles. In this post we're going to focus on some tax tips for online influencers.
What is an influencer?
Put simply an influencer is someone who has the ability to determine the purchasing decisions of others because of their status, expertise, or relationship with their audience.
There has been a rapid rise in the use of social media. According to a recent report this is now used by approximately 45% of the world's population. This trend is set to increase, arguably even more so during the current coronavirus pandemic. Because of this inevitably people may refer increasingly to influencers on social media for their lifestyle and purchasing decisions.
When does an influencer become regarded as business?
The key point to consider is the point at which something that started as a hobby (and essentially not taxable) became a successful profitable business.
Whilst HM Revenue's badges of trade have been around for many years perhaps the best indicator is when you start taking action with the intention of making a profit. This could be for example when you sign an agreement to receive sale commission, set up a website, or leave your full-time employment.
Start up costs
It's possible that in the early stages of your business you may realise trading losses because your start-up costs exceeding your income. HM Revenue can potentially restrict loss claims where these are considerable or prolonged and they consider a trade is not being run commercially.
If that's the case, sideways loss relief (the ability to offset against other income) will be denied by HM Revenue. Instead carry-forward of the losses against future profits from the same trade will only be permitted by HM Revenue.
Tax treatment of free samples and services
Any fees or commissions received as an influencer will potentially be taxable, however what about free product samples, holidays or stays in hotels?
Generally speaking gifts of goods and services are not regarded as taxable unless they can be converted into cash. However if good or services are provided under contractual terms their tax treatment will vary.
Billets Ltd agrees to send Harry free ties to wear. In return he promotes it on his weekly blog. He receives a commission for every tie sold. The tax treatment will be as follows:
If you receive a free service for example a free spa weekend at a hotel and it is not transferable and you can't exchange it for cash, then the gift of that service is not taxable. However, if you are paid by the hotel owner to stay at the hotel then this is a taxable receipt..
Irving gyms pays Edgar a regular fee to write a post about their chain of gyms. Edgar is paid £1,500 per month plus a gift of free annual membership for him and his family for this assignment
Edgar could be employed or self-employed for this role
If he is employed then his monthly earnings will be subject to PAYE. The cost of the gym membership will be taxable under the benefit in kind rules.
If Edgar is self- employed then his monthly earnings will be taxable as above. As far as the cost of the gym membership is concerned if this is included in his contract for services then it might be taxable at it's market value. However equally it might be argued that there is no sale of the gym membership and as this cannot be exchanged for cash it is not taxable
What expenditure can be claimed?
We set out below some tax tips for online influencers in terms of some examples of the expenses that can be claimed:
Cost of goods sold
Because of the type of business you run this might be unlikely however if you do, they will be tax deductible . An example of this might be personalised goods like t-shirts or mugs to give to followers. If they cost less than £50 and are not food or drink, broadly speaking they will be allowable. The cost of buying branded stock e.g. moisturiser for sale would also be allowable
Another example might be a lifestyle blogger who buys craft materials and videos themselves for Facebook or Vimeo. The cost of these materials will be an allowable cost for your business
If you sell items that were given to you personally then you would have to introduce them into your business at market value in order to claim the cost.
The cost of any support staff hired to maintain your 'brand' e.g. content writers, web designers will be allowable, If you are engaging them on a freelance basis you should undertake the necessary due diligence to determine that your workers are genuinely self-employed.
Travel and accommodation expenses
These would usually be allowable where there is a specific business purpose for example a travel blogger or where you are attending a business meeting or personal appearance.
However, home to work travel is not deductible if attendance at that workplace is 'regular and predictable'. Typically this would be if you travel between home and the office or fixed place of business
Cost of business premises
You can claim a deduction for the rental of an office or studio, along with any associated utility costs. If you are running your business from home you can also potentially claim a deduction based on actual costs.
Typically the costs of mobiles, online subscriptions and IT costs would be allowable. Additionally you would be able to claim the cost of any website domain registration fees and the Information Commissioner registration fee.
Advertising and entertaining
Any advertising in magazines or online including Facebook or Google ad words and any other pay per click costs would be allowable. Additionally the costs of running your website plus any social media campaigns can be claimed.
The cost of any entertaining would not be allowable unless it relates to your employees and is less than £150 per head per year.
If any appearance costs relate to a public appearance or performance it may be possible to claim a deduction for these - see here
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].