How social media influencers and content creators are taxed

It is estimated that in today’s thriving social media landscape worldwide The influ­encer marketing industry is worth $21.1 billion in 2023. In the UK alone glass door reports that the average salary of a social media influ­encer or content creator is over £33,000 per year, with additional cash compen­sation of up to almost £4,000. No matter the niche or industry, there will be an influ­encer who can influence consumer behavior. So it is certainly a lucrative business. Although the income is often viewed as glamorous, it is no less subject to everyday tax oblig­a­tions. Things get more difficult when we deal with gift or promo­tional items. This tax guide is intended to help content creators navigate tax regula­tions so they can properly complete their tax returns.

What is a Social Media Influencer or Content Creator?

Before we get into the tax rules, let’s first define what we mean by social media influ­encers and content creators so you know exactly whether you belong to this group. There are many other terms used to describe an influ­encer or content creator including YouTuber, vlogger, blogger and more generally expert or celebrity. No matter what term you use to describe this profession or activity, they all have one thing in common: they can influence the decisions and opinions of their followers through their digital content. Digital content can be any form of media on the various social media platforms available. From a video on YouTube, to a photo posted on Instagram, to a reel uploaded to TikTok, to even more tradi­tional forms of digital content like email newsletters, blog posts, and podcasts.

Is there such a thing as an influencer tax?

We should also start debunking any myths about the “influ­encer tax.” HMRC has no specific taxation targeting influ­encers or digital content creators, nor are they subject to their own tax rates. They are subject to the same type of taxes as any other profession with income, including income tax, national insurance contri­bu­tions, VAT (if applicable) and corpo­ration tax (if operating through a limited company).

You may still come across “influ­encer tax,” a collo­quial term that refers to the taxes influ­encers owe on income from brand partner­ships, sponsored content, affiliate marketing, or other forms of moneti­zation.

Why is the nature of your work in tax different?

There are two factors that make calcu­lating tax liability on influ­encer income less clear than other income. First, due to the nature of the work, it is not uncommon for content creators to receive gifts and free promo­tional products in return for their support. Sometimes these are sent unsolicited, which can make it even more difficult to determine whether they should be considered part of taxable income. However, on the other side of the argument, many of these gifts or items can be of signif­icant value, from high-end technology to cars to other luxury goods. Therefore, if these are offered either in lieu of cash payment or in addition to cash payment, it may be a signif­icant amount that should be taken into account. HMRC considers these types of exchanges to be “payments in kind”, which is not dissimilar to payments in kind (if the influ­encer were considered to be an employee of a brand rather than a self-employed person). Benefits in kind are taxable where they are received in the context of commercial trans­ac­tions.

This brings us to the second factor that makes influ­encer earnings a little more compli­cated. How do you determine if a content creator is acting? The social media landscape is vast and dynamic. It can enable anyone to become an influ­encer, not just those with a large following or followers who have formal brand ambas­sadors, sponsor­ships or other collab­o­ration agree­ments. In fact, many find “micro-influ­encers” (those with a small but highly engaged following) more compelling to consumers because their recom­men­da­tions often seem more authentic than those of large influ­encers who have clearly been paid to post about a brand. So if you recommend local cafes to your social media followers as a hobby and receive free coffee and pastries from them as a thank you, would that be taxable? In the following section we will go into this in more detail and help you make the deter­mi­nation.

What are benefits in kind and how are they treated for tax purposes?

To explain further, in-kind payments are a type of payment arrangement in exchange for goods or services that do not involve cash. Influ­encers can receive products to review or promote, and in return they get to keep the items without having to pay for them. If the person receiving these items is deemed to be a trader, the value of these items must be recorded as income. Impor­tantly, the value of the item is what the person could sell it for (the market price), not neces­sarily the retail price. For clarity, you would use the value as the market price of the item on the day you received the item. This means that the price can be both inflated and reduced. For example, if an influ­encer received the latest iPhone before it was released to the general public, it would be worth more than if they received it after launch.

In other cases, an influ­encer may be offered an experience instead of products, such as a fully paid vacation, including flights and accom­mo­dation. If these experi­ences are non-trans­ferable and cannot be sold for cash, these gifts are considered tax-free.

How do you determine if an influencer is taking action?

Once you under­stand what qualifies as income and the value of the products being given away, the next step is to decide whether they are taxable. As explained above, this depends on whether you received these products as part of the trade. HMRC defines trading as any activity that is deemed to be “the conduct of general business, trading or receipt of income” and is not partic­u­larly clear or helpful in relation to the task of influ­encing. However, we can also use others HMRC guide­lines for similar profes­sions such as writers who are also in the “content creation” business. It states that it is trading when they “organize their lives so that they regularly spend time writing in order to produce works that have commercial value” and “do so with a persistent and systematic marketing of the work for their own financial benefit”. Therefore, we can apply it to the case where a content creator organizes his life so that he regularly spends time creating content that has commercial value and contin­u­ously markets his work for his own financial benefit. Then this is considered a trade.

However, it’s important to keep in mind that even if you don’t market your work persis­tently and system­at­i­cally, you may need to disclose any freebies you receive because you may only be creating content on the side as a hobby. Other income often falls within the trading allowance, meaning you can earn up to £1,000 a year without having to declare it to HMRC. However, if you receive items that could be sold at a higher retail price, you will need to declare this on a self-assessment tax return.

What taxes do influencers and content creators have to pay?

So, we have already made it clear that there is no special “influ­encer” tax, but now let’s move on to what taxes must be paid by influ­encers:

Income tax:

In the UK, anyone earning more than £12,570 (personal allowance) must pay income tax on the amount above this threshold. The personal allowance (which is available in each tax year) can be augmented by the business allowance, which we explained in the section above. This means you can earn up to an additional £1,000 tax-free.

As soon as this amount is exceeded, your income is subject to income tax in the three income tax brackets:

• Property tax rate of 20%. You fall into this group where your total earnings will be between £12,571 and £50,270.
• Higher tax rate of 40%. You fall into this group if your total earnings are between £50,271 and £125,140. Additionally, from the point you earn £100,000 or more, for every £2 above this threshold you will lose £1 of your personal allowance.
• Additional tax rate of 45%. You fall into this group if your total earnings are £125,141 or more. There is no tax-free personal allowance at this level.

It is important to under­stand that tax rates do not apply to all of your income, but only to those within each income bracket. For example, if you earn £80,000 a year, £37,700 is subject to income tax at 20% (the difference between £50,270 and £12,570), then £29,730 is subject to income tax at 40% (the difference between £80,000 and…). £50,270). Your total income tax bill for the year will therefore be £19,292.

State insurance:

National Insurance (NI) is a form of tax levied to pay for government benefits, including the state pension. There are four different NI classes depending on your employment status and earning level. Class 1 NI is paid by employees and employers if the employee earns more than £242 per week from a single employer. Class 2 NI is treated as paid by the self-employed (although no physical payment is required) if their profits are above £6,725 per year and below £12,570. If someone who is self-employed earns more than £12,570 a year they will have to pay Class 4 NI and if they earn less than £6,725 they may want to make Class 2 NI voluntary contri­bu­tions so that they remain eligible for the state pension has. Finally, Class 3 NI is voluntary contri­bu­tions from people who are not working. Depending on the influ­encer’s employment status, they will likely have to pay either Class 1 NI or Class 2 and 4 NI.

VAT (VAT):

If a content creator has annual earnings of £90,000 or more, they are legally required to register for VAT (those earning below this threshold may still choose to register for VAT volun­tarily). Once you have VAT regis­tered, you will need to start collecting VAT in addition to the fee you charge for your services. For example, if you charge £200 per sponsored post, you will need to send an invoice for £240 and pay £40 to HMRC. This also means that any expenses you have paid that solely benefit your business and on which VAT is charged can also be claimed back from you. You must complete a quarterly VAT return in accor­dance with the Making Tax Digital (MTD) regime.

Can influencers and content creators claim reimbursements?

Now that we’ve covered the types of taxes influ­encers and content creators have to pay, let’s talk about how they can reduce these taxes. The biggest way to reduce your income tax liability is to reduce your profits. You can do this legally by accounting for your business expenses and deducting them from your income. However, HMRC has strict rules about what counts as tax-deductible business expenses, defining these as expenses that are “wholly and exclu­sively for the purpose of the trade, profession or vocation”. This is where things can get very special for influ­encers or content creators. Common costs that influ­encers can claim include:

• Camera or video equipment including lights and sound
• Computers, laptops and content creation software
• Business travel expenses to meet brands or visit film locations
• Electricity bills (or part of them if you work from home)
• Legal and accounting fees

However, some expenses may be subject to special scrutiny by HMRC and will be considered non-reimbursable expenses, such as:

• Goods and products that you buy in order to evaluate them but also to use them personally. For example, if you buy several new outfits to show your followers how you would style clothes and continue to wear them, it is unlikely to be considered a business expense but rather a personal expense.
• Events you host to promote yourself to brands. If you decide to host a lunch or dinner (or other hospi­tality event) to introduce yourself to brands and attract more customers, then this is not a reimbursable business expense as it falls into the category of Business enter­tainment falls.
• Fines or penalties due to legal viola­tions. These include parking fines or Adver­tising Standards Authority fines if posts are not correctly marked as sponsored content or adver­tising.

If you are unsure about whether you can deduct expenses, we recommend working with an accountant who can provide you with the right UK tax advice.

Records influencers should keep

Influ­encers must keep and maintain accurate and organized records of income and expenses. Not only will this allow you to easily complete your self-assessment tax return to pay taxes, but it will also be very helpful to you if HMRC decides to launch an inves­ti­gation into your tax affairs. In general, it is recom­mended that you keep your records for five years if you are self-employed or six years if you work for a limited company.

Get help with your influencer tax return

Calcu­lating and filing your self-assessment tax return can be tricky, from deter­mining the value of benefits in kind to deter­mining which expenses can legit­i­mately be counted against your income. Additionally, content creators are often so busy producing that they miss important regis­tration and submission deadlines. Relying on trusted accoun­tants allows you to focus on what you do best: inter­acting with your community and gaining followers, growing your social media accounts, and sharing the knowledge you care about. Contact us today using our online contact form to find out how we can help you with your personal tax return.