How are influencers are taxed?

With a dramatic increase in the use of social media platforms, such as TikTok, Instagram, YouTube and Only Fans, a spotlight is being cast on the way in which influencers and digital content creators are taxed. HMRC are starting to clamp down on people in this industry, and if those who are affected ignore their obligations, they could be in for a large (and unexpected) tax bill!

How influencers are taxed depends on the following:

• Whether it is a trade, or just a hobby. Badges of trade would need to be considered to determine whether or not it is a trading business. Examples include the individual seeking to make a profit, and the number of transactions involved. If it is a hobby, can the annual £1k trading allowance be utilised?
• The structure of the business:
  • Self-employed sole traders are taxed personally on their profits
  • Limited companies are separate legal entities and pay corporation tax on profits, and directors/ shareholders are taxed personally on what they take out of the company (salary and dividends)

Influencers are treated in the same way as other sole traders/ companies, however they often receive non-cash forms of income, which must be considered as well as cash. Income may come from the likes of donations, fees, sponsorship to endorse a product, gifts for promotion, discounted products and services, etc.

This can be a lot trickier to deal with than just receiving money in return for services. Non-cash payments are classed as payments in kind and are considered taxable income by HMRC, especially where the product/ service has been requested by the influencer, rather than received unexpectedly from a brand you have no affiliation with.

The value of payments in kind is based on market value, being the amount the item would sell for on the day it was received.

What expenses can be claimed?

Allowable expenses for tax include the likes of equipment/ kit costs (mobile phone/ laptop/ lighting equipment), telephone and internet costs, advertising and marketing costs, accountancy costs, software, travel costs, etc.

In addition, the cost of goods purchased to promote voluntarily (non-gifted products) are allowable.

The golden rule for all tax-allowable expenses is, are that they are incurred “wholly and exclusively” for the purposes of the trade. Where there is both personal and business use, provided the trade portion can be identified, it may be possible for the expense to be proportioned, and the business element claimed.

It is important to note, however, that in some cases there will be duality of purpose (and so failing the “wholly and exclusively” test), e.g. clothing. Although clothes may be purchased for business purposes, there will usually be a personal element (the decency and warmth argument – you have to wear something!).

Generally speaking, everyday wear will seldom be allowable for tax purposes, however the likes of costumes, uniforms and protective clothing needed for work will likely be allowable.

So what happens next?

A good accountant will be experienced in dealing with all the matters raised above, be familiar with the relevant tax legislation, and ensure all tax-allowable expenditure is claimed, so you do not have to pay any more tax than you need to.

Alexander Myerson & Co already have numerous influencer clients, so are well placed to handle the tax affairs of influencers and ensure they remain on the right side of HMRC, with no unwelcome surprises! We can handle your accounting and tax affairs, leaving you to get on with what you enjoy and do best.

So, if you think you could be affected and would like to discuss where you stand, please get in touch, or use the contact form on this page.