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Determining Whether You Are Trading: A Guide for Influencers

Determining Whether You Are Trading: A Guide for Influencers

Navigating tax obligations can be challenging for social media influencers, especially when determining if your activities constitute trading. HM Revenue & Customs (HMRC) defines trading as carrying out activities with the intention of making a profit. This guide provides a detailed explanation of HMRC’s criteria, real-life scenarios to illustrate trading versus non-trading activities, and a decision process to help you determine your trading status.

Definition and Criteria: HMRC’s Badges of Trade

HMRC uses several indicators, known as the “badges of trade,” to determine whether an activity is considered trading. These badges help assess the nature and intent of your activities. The primary badges of trade include:

  1. Profit-Seeking Motive: Activities carried out with the intention of making a profit are likely considered trading.
  2. Number of Transactions: Frequent and repeated transactions indicate trading rather than a one-off sale.
  3. Nature of the Asset: Items acquired for resale suggest trading, whereas personal items typically do not.
  4. Existence of Similar Trading Transactions or Interests: Engaging in similar transactions as part of a business activity supports the presence of trading.
  5. Changes to the Asset: Enhancing or modifying an item to increase its sale value suggests trading.
  6. The Way the Sale Was Carried Out: Selling in a manner typical of businesses, such as through an established platform or with promotional efforts, indicates trading.
  7. Source of Finance: Borrowing money to acquire assets for resale implies trading.
  8. Interval Between Purchase and Sale: A short interval between buying and selling suggests trading.
  9. Method of Acquisition: Acquiring items with the intention to sell them indicates trading.

Examples: Real-Life Scenarios Illustrating Trading vs. Non-Trading Activities

To better understand these criteria, consider the following examples:

Example 1: Trading

  • Scenario: Sarah, a beauty influencer, regularly receives beauty products from brands to review and promote. She sells surplus products on an online marketplace.
  • Analysis: Sarah’s frequent transactions, profit-seeking motive, and the nature of the items (acquired for promotion and resale) indicate trading.

Example 2: Non-Trading

  • Scenario: Tom, a travel blogger, occasionally sells personal travel gear he no longer uses. These sales happen infrequently and are not promoted.
  • Analysis: Tom’s activities lack frequency, a profit-seeking motive, and the nature of personal items suggests non-trading.

Decision Process: Steps to Determine if Your Activities Constitute Trading

If you’re unsure whether your activities count as trading, follow these steps to make an informed decision:

  1. Evaluate Your Activities: Review the badges of trade and assess your activities against each criterion. Look for patterns that indicate a profit-seeking motive, frequency, and business-like conduct.
  2. Consider Your Intentions: Reflect on your primary motivation behind the activities. If making a profit is a significant factor, it’s likely considered trading.
  3. Analyze Your Transactions: Examine the number and nature of transactions. Regular, repeated transactions involving items acquired for resale suggest trading.
  4. Seek Professional Advice: If in doubt, consult with a tax professional or accountant. They can provide personalized guidance based on your specific circumstances.

Special Consideration for Micro-Influencers: The £1,000 Trading Allowance

For micro-influencers or those just starting, HMRC offers a £1,000 Trading Allowance. This means you can earn up to £1,000 of income without needing to register for Self Assessment. If your income exceeds this threshold, you have two options to minimize your taxable income:

  1. Deduct £1,000 as an Expense: You can choose to deduct the £1,000 allowance from your total income.
  2. Claim Actual Expenses: Alternatively, you can claim actual business expenses incurred during the year if they amount to more than £1,000. This might be more beneficial if your expenses are high.

By carefully evaluating your activities and understanding HMRC’s badges of trade, you can determine whether you are trading and ensure compliance with your tax obligations. Staying informed and seeking professional advice when needed will help you manage your tax affairs effectively.