Celebrities and other “Influencers” on social media (e.g. Instagram, Facebook, YouTube, Twitter, TikTok) can earn considerable sums promoting their own and other brands of goods and services. But how should they plan for taxes on these earnings?
If the UK-resident Influencer is promoting themselves as an “individual” rather than via a company, HMRC will consider their income as activities from a “trade” and they could be liable to income tax at rates as high as 45% (plus National Insurance) . Following COVID-19, it is likely taxes will be raised substantially in order to pay for the cost of support packages. Therefore, Influencers with significant income should start thinking of managing their financial and tax affairs more pro-actively.
If the Influencer is paid a fee by the brand owner for endorsing specific products or services, this income stream is similar to the “image rights” income e.g. earned by a professional footballer. Therefore, it might be appropriate to set-up a company through which such activities can be promoted and fees billed. A UK company pays corporation tax on residual profits at 19% currently (after taking a living salary), compared to the 45% highest rates of personal income tax.
However, the Influencer should be able to demonstrate that a genuine “trade” of product endorsement and promotion is being performed rather simply performing a “contract for services” for the brand owner in order not to fall into anti-avoidance legislation. Most Influencers have genuinely built up a following based on goodwill generated via past or present activities, are taking real reputational and financial risk and could therefore be regarded as genuinely “self-employed”. It will only help in this regard if the Influencer if performing a variety of activities promoting and endorsing the products and services of a number of different non-competing brands.
In conclusion, it is worth doing some planning for the blogs, tweets, reviews, endorsements, videos and other promotional material of social media Influencers as the income generated therefrom and the consequent tax impact could be substantial.