Can social media influencers have their cake and eat it?
4th August 2023
Posted in Articles by Tom Minnikin
Did anyone see the Daily Mail news story this week involving Coronation Street actress, Catherine Tyldesley, and a cake shop owner from Keighley?
Rebecca Severs, founder of Three Little Birds bakery, received an unsolicited email from a PR company claiming to be organising a 40th birthday party for a “well known celebrity”. Could the bakery knock up a few cakes (a birthday cake, plus a hundred cupcakes, and also a special cake for her husband) they asked?
It all sounded very promising. That was until the PR firm explained about how their client proposed to remunerate the owner. “Payment would be in the form of ‘promotion on their socials’ … as well as in OK magazine”, they said, adding, “Let me know your thoughts”!
Severs responded as follows:
“Thanks so much for the email. I’m so sorry to hear that your client has fallen on such hard times that they can’t afford to pay small businesses for their products. Unfortunately, as my mortgage provider doesn’t take payment in the form of ‘promotion on their socials’ and my staff can’t feed their kids with exposure on Instagram, I’ll have to decline your very generous offer. Those are my thoughts”.
She went on to post the exchange on her own social media, which then went viral, leading to the Mail exposing Tyldesley as the mystery celebrity. Therefore, the bakery got its media coverage after all!
This got us all thinking about the tax position of media influencers and whether they are taxed on their cakes and other goodies…
Tax position of influencers
Can so-called social media ‘influencers’ receive this sort of payment-in-kind for effectively endorsing products without suffering tax consequences? HMRC doesn’t think so, and according to news reports earlier this year it has already embarked on a crackdown by sending ‘nudge letters’ to those it believes potentially owe tax.
In some cases, it will be easy to identify whether a social media influencer is carrying on a taxable activity. For example, if an individual is receiving regular income from paid-for posts, brand collaborations and other forms of social media advertising then the chances are they will be viewed as trading and will therefore be subject to income tax and National Insurance Contributions (‘NIC’) on the profit they make as a sole trader. Furthermore, in some cases where there is significant control exerted by the sponsor there is also a risk that the individual would be viewed as an employee, in which case IR35 rules would apply.
Regarding ‘freebies’ the tax treatment is more ambiguous but will generally depend on what consideration is being given by the influencer. Clearly, if the person is classed as an employee, then the ‘gift’ would be taxable as earnings. For influencers that carry on promotional activity as a sole trade then the receipt of a free item, even though badged as a gift, is more likely to be seen as a barter transaction (ie. Turnover for their marketing business). Barter transactions are taxable and may also be subject to VAT if the individual is making annual supplies in excess of the VAT threshold.
Even if the influencer isn’t carrying on a ‘trade’ there is still a high chance that HMRC will not see the receipt of the product as a gift. This is particularly the case if the person involved requested the item in the first place in return for services. This may be one of the reasons why Tyldesley got straight onto TikTok to swear how she had “no idea” about the PR firm’s emails to the cake shop!
Forbes Dawson view
The emergence of new industries like social media influencing create interesting questions when it comes to tax and as Milton Friedman once said, “there’s no such thing as a free lunch”. Those that operate in the digital space need to consider whether their promotional activities amount to a trade – whether paid in cash or in kind. These influencers are likely to be seen as ‘low hanging fruit’ by HMRC on the basis that (by definition) all their affairs are on very public view. For example, if an influencer was seen using their platform to sing the praises of a particular holiday company while on one of its holidays, HMRC’s working assumption may be that they had been paid in kind for social media services. These issues are not just restricted to influencers and barter transactions do come up in all kinds of other industries.
