You may have heard of influencer ‘unboxings’, where an online creator films themselves opening a luxury handbag, or top of the line gaming equipment, to share with their followers. At what point do these gifts constitute taxable income? When does an influencer need to declare these gifts in their business accounts? Should you be keeping records of gifts received and the reason these have been received?
As we are consuming more social media content than ever, brands have increased marketing budgets to gift items, or even holidays, to influencers and online content creators. As influencer gifting gets more and more elaborate and we see influencers with a modest following also receiving gifted items, we are seeing HMRC taking an increased interest on those who derive an income online.
An added complexity to this is how readily available and visible this information is for both HMRC and the general public to access with gifting hauls on most online platforms.
It is key to get the tax treatment right from the early stages of growing an online presence. We are experienced tax advisers in this area and would be happy to have an initial discussion to consider how we can help with accounting and tax matters.
We can help you navigate this complex area so that you can focus on growing your audience and business. Often being involved at an earlier stage can mean that we can advise how best to manage and operate your business to run tax efficiently.
Our tax disputes and disclosures team specialise in correcting historic tax issues and so can provide expert advice if income has not been reported in the past when it should have been. For more information on correcting the past see our article here.
What are payments in kind?
Payments in Kind are the use or the receipt of a good or service, instead of cash. This can include smaller gifts like receiving the newest line of a make-up product, latest gaming equipment, and the newest protein powder.
Larger gifts can include those often-viral luxury car gifts, a new-build home or a luxury holiday. However, it is difficult to know when a gift if simply a gift, and when it becomes taxable income.
When is this taxable income?
Self-employment profits can be easily distorted when receiving items, experiences or products instead of cash payments. There is also a particular difficulty with content creators, as the line of trade may not always be clear.
Often, influencers receive PR (press release) packages without prior discussion from the company, and there is not always a clear expectation for the influencer to produce content relating the product. So, does simply producing some content of these unboxings automatically make this gift a business venture?
A gift will not count as earnings if it based on personal grounds, or a mark of appreciation. However, in the majority of cases, gifts will fall outside of this relief and be treated as part of one’s trading income especially when gifts are repeated, from a brand you have no prior relationship to, or comes only with the expectation content is made from the gift.
HMRC is likely to consider these gifts as part of your trade income, due to the repetition. HMRC has a working assumption for influencers who are seen repeatedly singing the praises of a certain brand or product. They may automatically assume that money or gifts in kind are being traded for the content produced, so it is important to keep the lines of communication clear between any brand you work for.
Keeping appropriate records of discussions or communications with brands and details of items received and any agreements or contracts is key.
How to value a non-cash payment
Valuing a gift as income also comes with difficulty, especially if the gift is not on the open market, or if you incurred personal costs to receive it, like import duties. Unsurprisingly, HMRC does not accept tax payments in the form of gifts so you may not have the cash funds to pay your income tax, despite technically making a trade profit. Getting tax advice is therefore essential to financially prepare yourself for these tax implications.
Example
Sally has started creating make-up and fashion content. In her year as a self-employed social media influencer, she developed numerous and varied relationships with different brands and people.
A brand Sally has mutually followed for several years gifted her a very expensive handbag. They had no direct communication before. The brand stated in a letter alongside the handbag, that they loved her videos and wished her well. They did not ask her to advertise the gift, but she wore it in multiple videos, and wrote positively about it in her blog.
This is case, we would arguably suggest that there are sufficient grounds to treat this gift is tax-free, despite the price tag and reviews on her social media. In the letter, there was a clear mark of appreciation, with no caveat of further action from Sally. There was no contract in place, and the exchange was not repeated.
In a different scenario, Sally also went on holiday with a fashion brand. This is the first time she worked with the brand, and the holiday was promoted as appreciation of content to multiple influencers. The fashion brand paid for her hotel stay and gave her outfits to wear throughout the week.
During this holiday, she was expected to wear outfits given to her, make a set number of videos on her platform, and was asked to link all the products she wore to the brand’s website directly.
In this scenario we would need to consider whether the holiday itself has a value and is a payment in kind, or merely a place of work the influencer must go to in order to fulfil the obligations to promote the clothes.
HMRC would be unlikely to accept that the clothes were a gift, but would instead view these as a payment in kind as a business exchange. Regardless of cost, contract, or repeatability, there was a clear line of expectation of activity that is in line with her sole trade.
Sally may also be able to offset some of the profits, if she incurred any costs related to this holiday, such as flights and Visas. This is because her relationship with this brand would be considered a trading activity.
Overall, it is clear the lines of payments in kind compared to a tax-free gift is a complex area and should be discussed with your accountant or tax adviser.
If you have any questions relating to payments in kind, or if you are creating content and would like to know more about how Menzies could help you, please contact Ellisha Harding, Private Client Tax Manager, or Becky Page, Senior in Private Client.
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