Ben Affleck’s latest film ‘Air’ illustrates the impact of influencer power over consumers. The film details Michael Jordan’s 1984 association with Nike that led to the best-selling Air Jordan trainer.
Almost 40 years on and the world is a different place. Yet, a genuine association between product and celebrity is just as powerful. And in a digital environment that power is exponential.
Welcome to the world of influencer marketing.
What is an influencer?
An online influencer is an individual who is perceived as an expert in their field or subject matter with a significant and influential social media presence. These individuals can provide a valuable channel to market, offering brands the opportunity to engage with their target audience in a highly authentic way, building trust and extending reach almost instantly.
Influencer marketing is big business
As of 2022, the global market value of influencer marketing stood at 16.4 billion US dollars, having more than doubled since 2019 according to Statista¹.
As the industry develops and matures, so will regulation. HMRC are certainly taking more interest in this space.
In January 2023, HMRC launched a campaign targeting income from online marketplaces and digital content, chasing individuals for unpaid tax on income and gifts received online. This is reported to impact over 4,000 social media influencers and online earners in the UK.
Tax implications for business and influencer
While there is no ‘influencer tax’ some rules apply.
For the business:
- A business can give away products for ‘free’ as a gift to an influencer without having to pay VAT if the net value of the item is no more than £50 and it is not part of a series of gifts given to the same person.
- If the definition of a gift for VAT purposes is not met, the business will be seen as making a ‘deemed’ supply - if the business was entitled to reclaim VAT on the purchase of the item as input tax, it must also account for output tax on goods given away.
Paying with goods
- When the business gives away its products solely on the basis that the influencer will endorse or promote the item, the business is paying for a service using non-monetary considerations. The influencer is receiving goods and the business is receiving advertising services so a ‘barter’ transaction is occurring. The business is required to account for output tax on the value of the goods ‘given away’.
Payment with Cash
- Influencers with large followings may request cash incentives. Here, this is a simple payment for advertising, but if the influencer is based overseas, this could become a B2B purchase of advertising, making the business responsible for accounting for VAT under the reverse charge.
- This can prove difficult to confirm. Many influencers do not see themselves as running a business, but what they do can be viewed legally as more an economic activity rather than a hobby.
A deemed employee
- Both sides need to confirm employment status. If the influencer is a deemed employee, they need to be on the payroll and any payments (in cash or goods) should have PAYE and Class 1 NIC deducted, as appropriate.
- There is no minimum level here so even if engaging the influencer is an occasional activity, employment status must be considered.
- For The influencer:
- Care must be taken to ensure that the VAT registration threshold (currently £85k per rolling 12-month period) is not exceeded or they need to register for VAT. The VAT registration threshold will not just be breached if cash of £85k is received, but also if the value of products (as well as any cash), exceeds this threshold. This applies even if the goods are only provided for promotion on the influencer’s social media page.
- VAT registration means having to account for VAT, issuing VAT invoices and submitting VAT returns. This is less onerous than potential financial penalties if HMRC discovers a belated VAT registration requirement.
- Influencers must consider their income tax position and ensure relevant self-assessment tax returns are filed accurately and on time.
- The influencer’s income for tax purposes may include the value of the goods they are given to promote. Exceptions can apply, such as where an influencer is reviewing a product or experience for a third party. Sometimes this could be seen as wholly, exclusively and necessarily connected to the business offered by the influencer and not taxable.
Three key takeaways
- Retailers should undertake an employee status review when engaging an influencer. Ensure you know what you are paying for, what you are getting in return and that the influencer is clear about their own tax obligations.
- Put a formal agreement in place. In the absence of a formal agreement between business and influencer, HMRC could argue a ‘worst case’ VAT or employment tax position for both parties.
- Ensure the correct tax position has been taken and keep relevant paperwork for any investigation.
When done well, an influencer strategy can build the brand and grow the business. The authentic partnership between Michael Jordan and Nike has certainly stood the test of time. This may not result in a Ben Affleck film for your business – but you never know.
Tax tips for engaging an influencer:
- Agree employee status
- Put a formal agreement in place
- Keep a paper trail
¹ Statista (2023) Influencer marketing worldwide – statistics & facts. Link: https://www.statista.com/topics/2496/influence-marketing/#topicOverview
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This article was also published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.