Influencers: Are endorsable, sponsored or free gifts Taxable?

Influencers are often sent gifts, in order to promote a brand on their social media channels such as Instagram or YouTube.

There are ongoing investigations by the Competition and Markets Authority (CMA), which look into concerns that “social media stars might not be declaring when they’ve been paid or rewarded, to endorse goods or services”. Given this is still a fairly new business landscape, the tax laws are rather complex and quite open to mistakes being made.

We’ll take you through a summary of whether, and if so how, the goods you receive might affect your taxes! 💪

There are different reasons as to why you might be gifted a product. Broadly speaking, for tax purposes, we’ll group these up into three categories:

1. Paid for posts
2. Products to review
3. Freebies

Interestingly, the Competition and Markets Authority (CMA) published a report which defines a payment as, “Any form of reward, including money, gifts of services or products, or the loan of a product” and this applies even if the influencer “got sent it out of the blue (e.g. ‘freebies’)”.

Therefore, from a first glance, these all have the potential to be taxed in a similar manner to receiving payments for services. But as we dive deeper, the legislation opens up to ‘why you were given the gift’ and ‘what you do with the gift’.

So to answer this first question, anything you receive needs to be considered for tax purposes. Whether it was an agreed paid-for post on Instagram or a complete freebie out of the blue which you review on YouTube.

Let’s look at these three categories and some examples in more detail.

This we would consider the simplest treatment to work out!

If you’ve been paid to post, review or advertise a particular product or service. The income you receive will be subject to the usual income tax rules.

Simple!

A good example of this is an influencer with a large Instagram following that is offered a lump sum of let’s say, £10,000, to post x times about a particular product. This income needs to be declared on their individual or business tax return. The tax of which is then payable like any other sale of service would be, and the £10,000 is treated as part of their earnings/profits.

There are trading allowances to make use of which were introduced in FA 2017, that covers both trading and miscellaneous income of £1,000 or less in the tax year. But detailed records still need to be kept here so make sure you’re organised!

Influencers are often given products to review or endorse on their channel in the hope it raises the profile of the product. The tax treatment of these fall into a definition of a ‘barter transaction’.

What is a ‘Barter Transaction’!?

The rules around these were developed by case law in a 1948 House of Lords decision (Gold Coast Selection Trust Ltd v Humphrey [1948] 30TC209) and were more recently made explicitly clear for trading and property income in Section 71 of the Finance Act 2016. It essentially states that the value of trading income received in non-monetary form is taxable in full as trading income.

In a nutshell, the value of a transaction is deemed to be the money’s worth of a transaction i.e. how much it could sell for. This can present two problems for influencers:

1. Not everything can be converted to money!

As per HMRC’s Business Income Manual (BIM40051) there is an example given whereby you don’t need to pay tax on the product/service if it cannot be turned into money i.e. accommodation.

So panic over.

2. What if you get gifted a valuable item and end up with a massive tax bill!?

This here is clearly an issue. Imagine being given a high-value free gift to review (AMAZING!), and then having to pay 20% or 40% tax on the product!

A great example is a YouTube Gamer that gets given a brand new, custom-built gaming PC, with a 4k monitor and all the peripherals in the world to go with it. All they ask is you make a video about it and review how great it is. Your first thought might be “I’ve hit the jackpot”! But on consideration – It’s worth £7,000 and you now need to pay £1,400-£2,800 (20%-40%) tax… 😞 😞

Conversely, it might help to understand that the businesses sending these goods to be review can use the costs to reduce their taxes. So on the contrary, it’s only right the other party pays tax upon receipt of it.

It’s therefore extremely important to ensure an agreement is set out between the influencer and the business looking to promote, with the value of the item explicitly stated.

Who doesn’t love freebies?!

HMRC, that’s who. Because they want to tax them…

The key factor here is to look at whether the influencer has given consideration for the freebie or if it was received in a gratuitous manner. If consideration has been given it is taxable, whereas if the arrangement is gratuitous then it is potentially non-taxable. By ‘consideration given’ we look at whether there is an agreement in place for the freebie and is it enforceable i.e. the influencer needs to fulfil a certain action upon receipt. Likewise, if the influencer has asked for the freebie then that makes it fall foul of the gratuitous treatment.

The law is less clear if let’s say, an influencer receives a freebie out of the blue, which they then decide to, for example, post about on Instagram. Largely, the tax treatment of which will depend on whether the individual is registered as trading or not (which we will touch on below).

HMRC’s Business Income Manual (BIM41810) states that “voluntary payments designed in some way to augment the consideration payable for goods or services whether past, present or future, are taxable”. 🤔  In human language, this means that if you’ve received goods from a company that you may end up having business or sponsorship deals with (past, present or future), then it could be taxable.

An example here is a fashion model on Instagram, that is gifted freebies from a particular clothing brand, that then goes on to have a sponsorship deal with them. The fact a business arrangement has come to fruition gives the perception that the ‘freebie’ was not so free after all.

In the event of an enquiry the facts at hand would be considered closely, so it’s important to understand the risk factors before and after posting about freebies on social media.

Above we have given a reference to ‘trading’ and ‘non-trading’ several times. Whilst this might seems self-explanatory it is actually open to interpretation.

Since being a Social Media Influencer is such a new profession, the lines between trading and not-trading are still quite unclear. We, therefore, rely on guidance towards entertainers, athletes and authors if they have similarities to the field you operate in.

So if your content is very text-based, such as a blogger, we might use guidance orientated towards that of an author. So using that example, HMRC state the below:

“An author who:

• organises their life so as to regularly spend time on their writing to produce work which has a commercial value, and
• combines this with a persistent and systematic marketing of the work for their own financial benefit,

is carrying on a profession and the profits are chargeable as trading income.”

Based on this facet alone, a lot of bloggers or influencers might fall short of being deemed to be ‘trading’, since a lot of influencers start off as a hobby and casual basis. This in turn can influence the taxability of the said freebies above.

As you can probably guess, there is much to consider and interpret here. So rather than trying to decide these things yourself, it is always best to reach out to a professional for some tailored guidance!

We hope this post is helpful!

Keep on creating content and pushing the boundaries! 🙌

Feel free to get in contact with us if you’d like to discuss your situation further. Even if you’ve just started out, it’s best to plan ahead.

Want a little more information about how we can help? Check out our ‘How We Work‘ page for more detail.