Social media influencers are revolutionizing marketing strategies, leveraging their audiences to boost brand reach and sales, and in return, diversifying their income streams, creating complex tax situations. Influencers who earn over £1,000 annually must register with HMRC, handling various taxes, including self-employment and VAT. Seek an experienced tax advisor to ensure compliance with HMRC regulations. Read the latest insights from Abiola Badmus, Director of Accounts and Business Management, for guidance on tax implications of influencer revenue streams.
Social media influencers are disrupting the entertainment industry. Their mixture of sponsored and non-sponsored content gives audiences information and inspiration that leads them to make purchases. This allows companies to leverage influencer audiences and improve their reach.
Influencers benefit from these sources of income, which allows them to live their desired lifestyles. However, with various income streams, influencers can quickly become overwhelmed with accounting needs that complicate business setup and tax management.
Learn more about the tax requirements for influencers in the UK below and how Prager Metis can help you avoid financial pitfalls.
The Power of Influencer Marketing
There’s no doubt that social media influencers can significantly impact marketing efforts and overall brand or product performance. Take Kylie Jenner’s tweet about Snapchat back in 2018. She tweeted, “So, does anyone else not open Snapchat anymore? Or is it just me… ugh, this is so sad.” Following that statement to her millions of followers, the SNAP stock fell by 6%, decreasing the company’s market value by about $1.3 billion.
Influencers include social media “stars” who post on platforms such as YouTube, Instagram, TikTok, and other similar sites. Social media influencers build their reach and engagement across various niches, including fashion and beauty, lifestyle, health and fitness, food, parenting, and more.
While some maintain their social media status as celebrities in the entertainment industry, others have built an audience by posting original content. Some of the top influencers of 2024 include Cristiano Ronaldo, Taylor Swift, Dwayne Johnson, and MrBeast. Others include Khaby Lame, a comedian and lifestyle influencer with over 162 million followers on TikTok, and Chiara Ferragni, a fashion influencer with over 28 million followers on Instagram.
Financial Considerations for Influencers
HM Revenue and Customs (HMRC) has solid guidelines for influencers’ income and taxation for influencers. Unfortunately, the lines can become blurred on how certain income should be reported and taxed. Influencers may have a difficult time categorising their income or estimating the value of non-monetary compensation. Let’s take a look at some basic rules for the primary forms of influencer income.
Sponsored Posts
Sponsored posts are a primary source of income for many influencers. A company pays the influencer to post about a specific product or brand. These are generally set up as one-time transactions. When the influencer is compensated with money, the taxation process is a little more straightforward since it is easy to determine the value of that income.
Influencer income is subject to self-employment taxes, so if you receive anything in return for your social media activities, you must register with the HMRC if you make £1,000 or more per year. Your income from sponsored posts is also subject to National Insurance contributions, VAT, and corporation taxes (depending on your specific situation).
Affiliate Marketing
Affiliate marketing allows influencers to receive a commission for every sale of a specific product. The partnering company will generally provide the influencer with a link that they can use on their posts. The influencer’s audience can click on the link to purchase the product, and the link tracks the number of sales originating from the influencer’s posts. The influencer’s income is then calculated based on an agreed-upon commission rate from each sale. For example, you might receive 5% of each sale.
Fortunately, this is another income stream that can be easier to determine for taxation purposes. The income you receive from affiliate marketing is also subject to the basic self-employment taxes. However, your records must be kept up to date to make reporting easier at the end of the fiscal year, which can be time-consuming for some influencers.
Brand Partnerships
Brand partnerships may be similar to sponsored posts, but they are typically long-term relationships that could involve more than simply posting on social media. For example, a brand may have you on retainer to do a certain number of posts per month, or you may be compensated for activities such as attending in-person events.
The monetary compensation you receive in exchange for your services as an influencer is taxable according to the standard self-employment taxes. Again, it’s helpful to keep track of these with regular bookkeeping and accounting to ensure you can easily determine the total value of your taxable income.
Non-Monetary Compensation
One of the more difficult income streams to measure for taxation purposes is non-monetary compensation or payments in kind. Examples include free products you receive in exchange for reviews, gifts from brands hoping to get exposure on your social media, or free meals or experiences. These types of compensation are subject to typical tax implications, such as self-employment tax and VAT. While it might be easy to determine the value of some of these items, others can be determined by figuring out the realistic sale price of the item. If these items are not valued properly, you may face negative consequences if you are audited and are determined to owe taxes.
One form of non-monetary compensation that you do not need to report as taxable income is travel accommodations. If a company pays for you to travel to an event or a meeting (whether they pay for the travel directly or reimburse you), you do not need to count these expenses as taxable income. However, if you pay for the travel expenses without reimbursement, you can list them as a business expense to reduce your taxable income.
Collaborate for Effective Tax Strategies
Influencers must be aware of the tax requirements for self-employed individuals. If you make £1,000 or more in a fiscal year, you must register with the HMRC no later than October 31 in the tax year that you began trading your services. HMRC has already started cracking down on these requirements, sending nudge letters to influencers who may not be registered or reporting their income properly.
If you’re ready to build a proactive tax strategy for your influencer income, the experts at Prager Metis can help. Whether you’re just starting out or have been in the game for a while, Prager Metis has a team of experts who will advise you on business setup, tax strategies, international services, and more. Contact Abi for a consultation and discuss your financial needs and how she can make Your World. Worth More.
