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Tax for Social Media Influencers

What is the Tax implications for Social Media Influencers or any type of content creator is something we get asked a lot from our audience. Over the last ten years, posting your life on social media has gone from a superficial habit to a full-blown industry, and a very lucrative one at that. Yes, the world of social media influencers and online content creators has continued to expand year upon year, and with it comes plenty of fresh opportunities to turn your hobbies into a source of income. However, it also comes with the issue of how these sources of income can be properly taxed.

How is it Taxed for Influencers, YouTubers & Content Creators?

Whilst millions of people across the world have made money from online activities in some shape or form over the last decade, the ins-and-outs of how to report tax and revenue from this type of income is still quite hazy, even too many accounting and consulting agencies. There isn’t one set type of ‘influencer tax’ for online content creators; rather, the amount of taxable income is based on the nature of the activity and amount of money made.

For well-known celebrities, doing a sponsored ad on your Instagram account can earn up to $1 million per post (if you’re in a league with the likes of Kylie Jenner and reality TV stars). For accounts with a decent 5-figure following, you could be looking at making a few hundred to a few thousand pounds per post, or even getting paid in free products. Already, this poses a big question – how do you figure out how to tax someone based on gifts they receive?

The Simple Things

Okay, let’s start with the simple stuff. Every influencer or content creator who makes money online (whether it’s full time or part time) must register as self-employed with HMRC, even if they have another full-time job on top of that.

 However, the amount of tax you actually pay for your work as a content creator is dependent on how much of your income is above your tax-free personal allowance (which for the 2020/21 tax year was £12,500). This is the amount of income you can have that you don’t have to pay tax on. Obviously, we want this number to be as big as possible!

Another nice little helping hand is expenses. These are things that you need for your self-employed work that you can claim as an expense, which reduces your overall tax bill. Expenses can be anything that you can prove you use for work, such as laptops, phone bills, office equipment and even marketing costs.

As many people’s circumstances vary, there can be other ways to reduce your tax bill, such as claiming certain types of income tax relief. Again, this varies from person to person.

The Trickier Side – Tax for Social Media Influencers

What makes taxable income for social media and online content creators so difficult to distinguish for the likes of HMRC is the declaration of (or sometimes lack thereof) paid content. Despite a lot of platforms introducing the option to state clearly on your content that you’re posting a paid promotion, some people choose not to, despite being very clearly in breach of regulations.

Sometimes you will see influencers talking about a product they love, and then they suddenly claim, “this is not an ad”. This is because if it’s seen to be a paid endorsement that they’re not reporting as taxable income, they can get into trouble with HMRC. By marking what content is a paid advertisement and what is not, influencers can make the job of reporting their taxable revenue a much simpler task.

If influencers choose not to do this, things become muddled and the risk of having to pay a penalty or consequence becomes greater. Things become hazier still when the concept of ‘payments in kind’ comes into play, which we touched on a bit earlier. This is when businesses pay an influencer or creator through products and services, rather than currency. This form of payment can be anything under the sun, from a pair of colourful crocs to a brand spanking new BMW – if it’s a reward for posting a type of content, it’s technically considered a payment.

It’s also still seen as taxable by HMRC, so you still have to declare the financial value of the items you receive as payment. Of course, as we mentioned, it can be hard to gauge the exact value of an item you received, and therefore harder to report. This is why if you do sign a brand deal or sponsorship offer from a brand or business, make sure to get the value of what you’re earning in writing before you sign. This way, when it comes to declaring your earnings, you can refer to the agreement (hard copy preferably) instead of wringing your hands and hoping HMRC won’t notice the new range-rover that popped up on your driveway after you posted that 60 second clip about how much you love range rovers (which wasn’t marked as sponsored content, so it definitely wasn’t.)

If you’re actually the brand or business that is gifting the influencers, then this warning is for you, too; if you’re reluctant to pay an influencer cash for their work and would rather go down the payment-in-kind route, be aware that HMRC and revenue companies will still expect this to be declared as income earned. If the content creator does not have the funds they need to send the tax that they owe, there’s an obvious problem. In the long run, this may not be the greatest idea. The influencers may just end up selling all the nice things you give them in exchange for money anyway.

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In Summary: Tax for Social Media Influencers

Although it can be confusing to manage, making money off social media platforms and online content creation can be an amazing way to earn, either as your primary source of income or just as an additional stream of revenue for Social Media Influencers. There are many pitfalls and creases that need to be ironed out when it comes to reporting taxable income from these jobs, but it shouldn’t put you off if you have a realistic and successful idea that is making you money. It’s a good idea to find an accountant or financial agency to advise you so you don’t have to pay these easily avoided penalties.

How We Can Help

Cubed Consultancy is a consultancy firm that helps clients with all matters relating to accountancy, tax, corporate finance and wealth management, no matter big or small. Headed by Mark and Richard, two chartered accountants with years of experience between them, Cubed has grown into a solid, tight-knit business due to the bond we have with our clients and how closely we work together as a team. Our mission is to simplify the accounting and tax experience for everyone, whether you’re an individual or a corporation. We aim to be a business that helps you achieve your personal and professional goals, and more importantly, a business you can trust.

Unlike some consulting agencies, we at Cubed are clued into this budding new industry and are equipped to work with any clients who are stepping into the world of influencing and online content creation. If you have any questions, please don’t hesitate to get in touch or start a consultation call today!

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