How gifts to influencers are taxed

Some time ago, we wrote about the tax treatment of social influencers. Recently, the media has focused on social influencers and gifts, so we've decided to revisit how gifts to influencers are taxed. 

The rise of social media has given birth to a new breed of digital celebrities known as social media influencers. These individuals have amassed substantial followings on Instagram, YouTube, TikTok, and Twitter platforms. They effectively turn their online presence into a business. 

As their influence has grown, exponentially so have the opportunities for collaboration and receiving gifts from brands and followers. It's therefore no surprise that HMRC wrote to 1,000's of social media influencers recently, to remind them of their reporting obligations.

Gifts to influencers generally

Gifts to influencers can come in a variety of forms, from physical products (e.g cakes!) and experiences to monetary contributions. These gifts serve a number of functions. They could be promotional tools for brands seeking exposure to the influencer's followers, tokens of appreciation from followers, or simply gestures of goodwill.

When determining how gifts to influencers are taxed, it might be obvious they are carrying on a taxable activity - particularly when you apply the badges of trade. For example, if you receive income from paid-for posts, brand collaborations and other forms of social media advertising, then you'll be regarded as carrying out a trade. 

If that's the case, you'll, therefore, be subject to income tax and national insurance contributions (NIC) on any profit you make as a sole trader or corporation tax if you carry out this activity as a limited company.

What's HMRC's view on how gifts to influencers are taxed?

HMRC acknowledge in their own guidance that it can be difficult to determine whether a gift is a taxable receipt. Generally speaking,  HMRC considers gifts to be taxable in the following circumstances:

• Where they are received in connection with a trade: If your online presence and activities are treated as a trade, gifts received as part of this trading activity could be subject to tax.

• When gifts are expected or received due to the trade: If you receive gifts because of your online activities and following, HMRC may view these as being linked to your trade.

• Gifts which are converted into money's worth:  If you receive a gift and later sell, rent, or exchange it, the gift might be considered a form of income.

Do HMRC recognise any form of exemption?

HMRC recognise that not all gifts have a significant monetary value. The "de minimis" exemption means that minor gifts of low value, often are not taxable. However, it's important to note that this exemption has a monetary limit (usually around £50) and doesn't apply to gifts provided in the course of business.

What about payments in crypto?

The same principles mentioned above apply to gifts in the form of cryptocurrency. When you receive them, you will potentially be taxed on the £GBP equivalent of the cryptocurrency.

Practical considerations

If you are an influencer who has received gifts that might be considered taxable trading income, you are responsible for reporting these gifts on your tax return. This ensures you have proper transparency with HMRC. It also avoids any potential penalties for non-compliance. If you are an influencer, you should, therefore, maintain clear records of all gifts received, including their nature, value, and the context in which they were received.

If you're a business (for example, a bakery!) collaborating with an influencer, you'll need to be aware of the tax implications of gifting. If a gift is deemed to be taxable income for an influencer, the value of the gift may also be considered a tax-deductible expense for your business.

Summary

The evolving landscape of social media influencers and their collaborations with businesses presents new tax issues. If you're an influencer, it's essential to differentiate between gifts received as tokens of appreciation and those received in connection with your business. Clear record-keeping and proper reporting are key to effectively navigating your reporting obligations with HMRC. However, if you're a business working with an influencer, you'll need to be aware of the potential tax implications of any gifts made and claim tax relief where appropriate.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to email us at info@hardyaccounting.com