How gifts to influencers are taxed
Some time ago we wrote about the tax treatment of social influencers. Because of media focus recently on social influencers and gifts, we'll now discuss how gifts to influencers are taxed.
The rise of social media has given birth to a new breed of digital celebrities. These are known as social media influencers. They have amassed substantial followings on platforms such as Instagram, YouTube, TikTok, and Twitter. What's more, they effectively turn their online presence into a business.
Because their influence has grown, so have the opportunities for collaboration and receiving gifts from brands and followers. Therefore it's 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 come in a variety of forms. These range from physical products (e.g cakes!) and experiences to monetary contributions. What's more 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 sould be obvious they are carrying on a taxable activity. This is especially so when you apply the badges of trade. For example, where you receive income from paid-for posts, brand collaborations and social media advertising you'll be regarded as carrying out a trade.
If that's the case, you'll be liable to income tax and national insurance contributions (NIC) on any profit you make as a sole trader. Altenatively, this will be 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 it's difficult to determine whether a gift is taxable. However, HMRC do 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, this exemption has a monetary limit (usually around £50). Additionally, it 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're an influencer receiving gifts that might be taxable, you are responsible for reporting these gifts on your tax return. As a result, this ensures you have proper transparency with HMRC.
Additionally, it avoids any potential penalties for non-compliance. Therefore, if you're an influencer, you should maintain clear records of all gifts received, Also these records should include 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. Therefore if a gift is taxable income for an influencer, the value of this gift is 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.
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