The use of digital platforms and social media has grown rapidly in the years leading up to and since the pandemic. Readily available new technologies and the reach of social media have created opportunities for online influencers which were unimaginable until relatively recently – but such developments have also created UK tax traps for the unwary.

Tax considerations

The first point to note is that there are no special tax rules for influencers, who are treated in the same way as other self-employed individuals. Even if income earned from influencing is not a main source of income, it still needs to be declared to HMRC.

What might start as a hobby or side-line to employment can produce increasingly significant amounts of income. If generated from a trade, profession, or vocation, such income is considered taxable in the UK.

Social media influencers vary hugely in background and can be categorised by their follower count. Mega-influencers, such as A list celebrities, have a significant public profile and millions of followers. Nano-influencers have less than ten thousand followers and may simply be adept at carving out a niche of followers.

Whatever their background, influencers seek to generate revenue by creating valued content and interacting with followers to promote themselves/other brands and to increase the size of their following on online platforms (such as Instagram, Tik Tok and YouTube).

This might constitute acting as a brand ambassador or advertising a brand – for which they might receive money or be ‘gifted’ a product or service in exchange for promoting the brand. Influencers might also market and sell their own material, eg, music.

This is not just an industry for ‘grown-ups’. It is not uncommon for teenagers to establish an online presence, or for children to earn significant amounts of income from social media influencing (with the term ‘kidfluencer’ coined to describe such children).

Use of nudge letters

This fast-growing industry has not gone unnoticed by HMRC. Having identified individuals with potential earnings from online activity, HMRC are running targeted campaigns aimed at them, and using compliance techniques to encourage tax compliant behaviour, such as sending ‘nudge letters’ to influencers who may have failed to report or declare earnings in a tax return.

These types of campaigns are routine for HMRC and are a way of ensuring that individuals are ‘paying the right amount of tax at the right time’.

While a nudge letter should not necessarily be seen as the start of a formal statutory investigation into an individual’s tax affairs, it is important that, if a nudge letter is received, it is not ignored.

In many cases, influencers are not deliberately avoiding paying tax – they are simply unaware that they might have a taxable trade or profession which must be reported to HMRC. With money earned through influencing subject, in principle, to income tax and National Insurance contributions, it is important to consider whether what a person (or child under someone’s guardianship) is doing needs to be declared and how this should be done.

Anyone living in the UK and making a profit from online content needs to be aware of their tax obligations. It is likely that the profit will be taxable and must be reported to HMRC through a tax return.

A self-employed influencer can also claim certain expenses to set off against the income from their work, reducing any tax bill. Tax deductible expenses for influencers can include marketing, subscriptions, costs of distributed content, travel expenses and the like.

As well as earning monetary income, gifts are also usually classed as income, meaning that influencers who are ‘gifted’ products or experiences in exchange for a feature can have an obligation to include the monetary value of these in calculating income for tax purposes.

And don’t forget about VAT

As well as income tax issues, an influencer who sells physical goods or who supplies intangible services may have a liability to register for VAT in the UK. A potential VAT liability also exists when supplying digital services to overseas consumers.

Those selling online need to consider the role of any platform or marketplace they use, and how the VAT due is to be correctly accounted for by the parties involved.

In some instances, the platform or marketplace assumes a liability to account for VAT – regardless of the turnover of the person selling via the platform.

The current VAT registration threshold in the UK is £85,000. However, thresholds in other countries tend to be lower or, in some cases, nil.

If turnover from making taxable supplies (goods and/or services subject to VAT) exceeds the threshold, then the supplier must register for VAT in the country in which they are deemed to be making supplies.

Although that affords the opportunity to reclaim VAT on business expenses in some instances, unless the supplier’s customers are themselves VAT registered businesses, VAT registration may reduce an influencer’s income after tax.

Call to action

Anyone concerned about their tax position should seek help from a qualified tax adviser. Whether the matter under consideration is prospective or after the event, following receipt of one of HMRC’s enquiry letters, a tax adviser will help their client to understand their obligations and can ensure appropriate communication with tax authorities.

Failure to act, particularly following receipt of a nudge letter, can lead to higher penalties and an escalation in action from HMRC.