The rise of social media and digital marketing has brought us influencers. These stars on social media have amassed vast followings and enjoy lucrative brand partnerships.
Like any other form of income, however, you may be wondering: do influencers pay taxes? In this blog, we will take a look into the world of influencer taxation and explore the obligations and responsibilities of those making a living in this rapidly evolving industry.
Understanding Influencer Income
In the UK, the tax system is designed to ensure that all sources of income are accounted for, so influencer earnings are no exception.
If you are an influencer, it is important to recognise that your earnings are subject to tax. Whether you receive payments in cash by offering gifted products, goods, or services, the taxman has an interest in your income.
Influencer income is a multifaceted landscape. These diverse revenue streams create a unique financial portfolio for content creators.
Whether it’s a paid partnership with a brand or commissions from affiliate links, influencer earnings can be complicated and are subject to taxation. If you are an influencer in the UK, it is important to take into consideration the complexities of your income in the digital age.
Influencer Income
If you are an influencer, your income source may come from some of the following things:
Sponsored Content
Sponsored content involves brands or companies paying you to promote their products or services on social media platforms. You can receive compensation from this, and so this is considered taxable income.
Affiliate Marketing
Many social media influencers use affiliate links to earn a commission when their followers make a purchase through these links, and these earnings are then taxable.
Ad Revenue
If you monetise your content on platforms like YouTube or have a blog with ads, the income generated from advertising is also subject to taxation.
Product Collaborations
Some influencers receive free products, services, or gifts in exchange for featuring them on their platforms. The value of these products and services must be accounted for in your tax return.
Merchandise Sales
Influencers who sell their own merchandise or products directly to their audience must report the income generated from these sales.
Income Tax and National Insurance for Influencers
In the UK, influencers are considered self-employed if they earn income from their online activities. As a self-employed individual, you are required to pay both Income Tax and National Insurance contributions on your earnings.
The amount of Income Tax and National Insurance you pay depends on your total earnings, and there are specific thresholds to consider.
Income Tax
Income Tax rates are structured in bands, with different rates applying to different portions of your income. The basic tax rate was 20%, the higher rate was 40%, and the additional rate was 45%. It is essential to check the latest rates and rules with HM Revenue and Customs (HMRC), which a dedicated accountant can help you with.
National Insurance
National Insurance contributions help you qualify for certain state benefits. The rates and thresholds for National Insurance contributions can also change, so it is crucial to stay up-to-date with the latest figures.
Registering as Self-Employed
If you are earning income as an influencer in the UK, you should register as self-employed with HMRC. This process involves filling out specific forms, providing details about your business, and setting up your tax account.
You can register online, and it’s essential to do this as soon as you start earning income from your influencer activities.
By registering as self-employed, you’ll receive a Unique Taxpayer Reference (UTR) and gain access to the necessary tools and resources for managing your tax affairs. This step ensures you’re operating within the bounds of the law and fulfilling your tax obligations.
Keeping Accurate Records
One of the most critical aspects of managing your taxes as an influencer is keeping meticulous records of your income and expenses. These records should include invoices, receipts, and any other financial documents related to your influencer business. Other cases include tax implications, barter transactions, trading incomes and deductible tax documents. In the UK, you’re required to maintain these records for at least five years following the tax year to which they relate.
Influencer Expenses You Can Claim
The good news is that, as a self-employed influencer, you can deduct certain expenses from your income before calculating your tax liability. These allowable expenses can help reduce your overall tax bill. Typical deductible expenses for influencers may include:
Equipment
Cameras, smartphones, laptops, and any other equipment necessary for your influencer work.
Office Space
If you have a dedicated workspace for your online activities, you can claim a portion of your household expenses, such as rent or mortgage interest, utility bills, and council tax.
Travel and Accommodation
Expenses related to work-related travel expenses, including transportation, accommodation, and meals, may be deductible.
Subscriptions and Software
The cost of software, tools, and subscriptions used in your influencer work can be deducted.
Marketing and Promotion
Expenses associated with promoting your content, such as advertising or sponsored posts, can also be deducted.
For any of these expenses, it is crucial to consult with an influencer accounting professional to ensure you are correctly categorising and documenting them.
Filing Your Tax Return As an Influencer
The deadline for filing your self-assessment tax return is January 31st. You will need to report your income, expenses, and any other relevant financial information in your tax return. HMRC provides online tools to help you complete this process.
It is advisable to file your return well before the deadline to avoid potential penalties, but a professional accountant can assist you with this, saving you a lot of time and effort attempting to navigate through the process on your own.
VAT Registration for Influencers
If influencer earnings exceed a certain threshold, you may be required to register for VAT. The VAT registration threshold is £85,000.
VAT registration can have a significant impact on your financial management and obligations, so it’s wise to seek professional guidance if you approach or exceed this threshold.
Influencer Accounting at DH Business Support
Seeing as the world of earning as an influencer can be confusing, it is useful to know that specialist accountants exist who have experience and knowledge within this industry to help you navigate this world of earning money online in various ways.
Influencer marketing is a booming industry, and as with any business venture, it comes with tax responsibilities. This is where DH Business Support is here to support you. We can help you register as self-employed with HMRC, ensure you are staying tax efficient, and help you complete your self-assessment annual tax return, to name a few things.
Make sure to find out more about our influencer accounting services on our website, and please get in touch by contacting 0330 088 1701 or hello@dhbusinesssupport.com.