Influential Business: Taxing #Influencers

The rise of online influencers in the past 24 months has fascinated me. Influencers are the new rock stars and movie stars of this generation, and the amount of money involved certainly proves that. Back in August, Paige Vanzant revealed how she makes more money from advertising products on Instagram than she does from fighting in the UFC. The biggest influencers in the world make millions every year and many can command six figures for a single post.

The appeal of using an influencer to advertise a product is easy to see. Print and TV advertising has nosedived over the last decade and these influcers have millions of eyeballs on every piece of content they put out there. So it’s an effective way for advertisers to get a high volume of impressions.

Such is the appeal of the influencer, that in a 2019 survey of school children aged 11-17, being an influencer was the preferred career choice of 17% of them.

So are we set to see an entire generation pursue a career in influencer marketing? And how does one even become an influencer? And, with the accountants hat on, how are they going to be taxed on the income they earn from being influential?

Becoming an Influencer

To my mind, becoming an influencer isn’t a career choice on day one. Rather I think it’s the bi-product of two things – talent and communication skills. You don’t decide to be an influencer and then figure out how to go about it. You have a expertise in something and you communicate it. From there, you build an audience.

I think there’s an inversely proportional relationship between talent and communication that makes successful influencers.

In the picture above, influencers and potential influencers sit above and to the right of the line. Either incredibly talented individuals with some basic communication skills that people pay attention to because their talent is beyond question, or people who are not incredibly talented but have the ability to captivate people with their story and the way they tell it – or they have the resources to have their message communicated for them.

For example, the Kardashians would probably sit to the far right of the graph in the bottom half – questionable talent but have a huge captive audience. Wayne Rooney would probably be somewhere towards the top and to the left hand side – highly talented but not necessarily the best communicator. Both, however are highly influencial.

For kids who want to persue a career as an influencer, I would say – don’t. Instead, become incredibly good at something. Becoming an influencer happens after that. And if it doesn’t, you’ll have the skills to go after plan B.

Tax on Influencers

In terms of what influencers should declare to HMRC, this is relatively straightforward – for the most part. In short, when you are paid money to promote a product or brand, you need to declare it as income and pay tax on it. Conversly, when you spend money carrying out that promotion, you can claim it as an expense to reduce your tax bill. So costs like software, telephone and broadband expenses, advertising costs, management fees and travel costs are all allowable (so long as they pass the “wholly and exclusively” test).

The one difficulty influencers may face when working out their taxable income is when they receive payments in kind. This is when a brand pays you wholly or partly with goods or services. For example, if you were a fashion blogger and someone wanted you to promote their jewellery and, in return let you keep what they sent you, you would be expected to pay tax on the value of that jewellery. To my mind, this should be valued at the brands actual cost of the goods/services as that is the expense that they will end up claiming on their side. But, it’s easy to see how a relatively successful influencer could end up accumulating a significant tax bill without ever being paid in cash.

There is one important exception to this however. If a brand sends an influencer goods unsolicited, in the hope (but not the guarantee) that the influencer will show it off on Instagram, Facebook, Tik Tok etc, then there is no liability. There was no agreement between the influencer and the brand for exchange of services and so it’s not taxable.

I would suggest that for all paid work (paid in cash or otherwise) you should have a written agreement with the brand and, where payment is made in goods or services, the brand should state their value in the agreement.

Declaring Income

If you need to declare income as an influencer, you have a choice of how to do this – either as a sole trader or as a limited company. Which to choose comes down to your own circumstances, what other income you have, and a number of other things. Chat to your accountant about this (or feel free to email me for some advice). Given the speed of growth of this sector, it’s likely HMRC will be keeping an eye on it to check whether influencers are declaring their income so the sooner you act the better.

As with all things tax, there is no such thing as too much evidence, so make sure you keep a record of what you’ve been paid (cash or otherwise) and what you spent.