Businesses using social media influencers to ‘advertise’ their products may face unexpected tax bills as HMRC views the arrangement as a benefit in kind.
This started with the concept of celebrity endorsement, which has now expanded, and many businesses now seek ordinary people with a sizeable following on social media to blog, podcast, post or create video content about their brands with a view to influencing the general public’s purchasing decisions.
While the online promotion of products may be seen as a straightforward endorsement, HMRC views the arrangement as a benefit in kind and it is therefore taxable.
Due to the increased use of social media, it has led to a significant increase in businesses using “influencers” to help sell products.
The way some companies do this is to provide products to the influencers free, in exchange for a review on social media. Whilst this may appear to be a cheap form of advertising, there is a hidden cost – of which many businesses appear to be completely unaware.
The problem lies in the provision of free goods to influencers. This is typically taken by HMRC to be a taxable benefit which attracts both tax and national insurance contributions (NICs), even where the influencer is not an employee of the company providing the goods.
There are some exceptions where gifts can be made without needing to be reported. However, such exceptions would need to satisfy all the following criteria:
- the gift consists of goods or a voucher that are not exchangeable for cash.
- the third party making the gift is not the employer or a person connected with the employer.
- the gift is not made in recognition of, or in anticipation of, the performance of employment services.
- the gift has not been directly or indirectly procured by the employer or by a person connected with the employer; and
- the total cost of all gifts made by the provider to the recipient, or to members of the recipient’s family, during the tax year is £250 or less (inclusive of VAT).
In most cases there is usually no employer/employee relationship between the goods provider and the social media influencer which means that some of these criteria can be fulfilled. However, most of these arrangements will be caught because the “gift” is made in recognition of a particular service, which HMRC deems in these circumstances to be an employment service.
Taxed Award Scheme (TAS)
Providers of the goods need to set up a Taxed Award Scheme (TAS) with HMRC to deal with the liabilities on the goods they provide. A TAS can be utilised for any non-cash awards, so this could include other incentives for using and reviewing products as well as provision of the product itself.
While providers could take the attitude that the influencer should report the benefit on their personal tax return, from a practical perspective, the provider is unlikely to obtain much traction with influencers if they take the view that the influencer must pay the tax on the free goods. It is, therefore, more likely that they pay the tax as well as the NICs via their TAS.
There are several obligations of the goods provider under a TAS including issuing certificates to the recipients of the awards and making returns to HMRC at the end of the year. The total tax is due to HMRC within 90 days of the end of the tax year in which the awards were made.
Businesses and others who provide incentives to social media influencers need to be aware of the issue and include the tax and NIC costs in their budgets. If they did not know about the issue, they need to act quickly and set up a TAS rather than wait for HMRC to ask questions.
Credit: Fiona Fernie of Blick Rothenberg