Businesses have for many years looked to provide gifts or similar awards to key contacts in their industry, or those that are responsible for covering their industry. Traditionally, this could see manufacturers providing gifts, holidays or similar perks to key client contacts (or salespeople, for example, in independent car dealerships), where individuals have met specific sales targets.

The importance of this whole area and its complexity has, however, increased significantly over the last 10-15 years. For example, there is now a trend for many companies to increasingly use social media influencers as part of their marketing strategy, while many millennials often appear to regard influencing as a genuine career option.

As such, it is sensible for accountants and tax advisers to be aware of the tax implications that can arise for individuals and companies in this regard. As with most things involving taxes in the UK, there isn't necessarily any simple answer from a tax perspective and the ‘correct’ answer may differ depending on whether you are dealing with the employees of an independent third party (the sales personnel of a car dealership) or social media influencers – and whether these independent influencers are held to be genuinely independent (self-employed) or are deemed employees for tax purposes.

This article therefore specifically focuses on the obligations arising for companies dealing with social media influencers (and specifically assumes they are self-employed), though similar issues or questions may arise with third-party employees.

Perhaps the first issue to consider is whether the gift to the influencer actually triggers any tax liability whatsoever. In this regard, for example, HMRC guidelines indicate that small gifts worth under £250 (including VAT), would usually be fine from a tax perspective and not create any issues for either the company or the recipient. However, issues can arise if the business provides the influencer with cash directly or vouchers that can be exchanged for cash. In addition, the £250 limit needs to be considered from a ‘family’ perspective – e.g. gifts to an influencer and their children would need to be combined when assessing whether the £250 threshold has been exceeded.

Q What's the position from a company perspective?

Where a tax liability does potentially arise because the above conditions are not met, it is then sensible to assess what the value of that benefit or gift actually is. In some cases this will be quite simple to assess – e.g. where the business has purchased something externally and there is a clear, specific cost for the perquisite involved. However, what is the situation with those benefits that have no definitive cost – e.g. providing a journalist or influencer with a free stay at a hotel or spa, in the hope that they will provide positive feedback about their experience?

Should the benefit be assessed at the ‘market value’ for that experience? Or can one use some other basis – e.g. the marginal cost for the hotel room and/or spa? The bad news is that, in practice, if we are dealing with self-employed individuals, one can simply use the ‘employment tax rules’ for assessing values. This can mean, one has to have some detailed discussions with HMRC about what values should be processed in these cases.

Q What about the individual’s tax position?

The other angle one needs to consider is more focused on the position from an individual perspective – that is, the position of the social media influencer.

For example, it is important to consider whether the beneficiary of the gift is actually trading as a business. After all, just receiving a free spa treatment or hotel stay as a ‘gift’ would not create any tax implications for the recipient and hence not be something that a company (or the individual) needs to assess further from a tax perspective.

As such, one needs to consider whether, for example, an ‘influencer’ is specifically developing a social brand with the aim of making income in this area. Or is this something they are doing purely as a small-scale hobby? If it is the latter, you have no problem – activities from hobbies are not innately taxable. However, as one can imagine, it is easy for something that is initially just a hobby to become something more substantial over time. Moreover, it is often difficult to assess at exactly what stage something purely done as a fun hobby has become a business, so businesses should take care in this regard.

However, if one has established a clear social media presence as a ‘business’, one could be regarded as self-employed by HMRC and liable to income tax and National Insurance Contributions (NICs) on the money received from those activities. This can include direct payments but also ‘payments-in-kind’ (e.g. products you can use or sell), even though you are not legally an employee of the business that paid you or supplied the product.

Q How can the tax liability be settled?

As indicated above, in the first instance the tax liability for any payments in kind would sit with the self-employed influencer and would need to be reported on their annual tax return.

However, in many cases, the business providing the ‘product’ may want to avoid creating a tax charge for the influencers with whom they work. As such, businesses may agree a ‘taxed award scheme’ (TAS) with HMRC. In simple terms, this is the ‘third-party equivalent’ of when a company has a PAYE Settlement Agreement (PSA) in place for its own employees. Under a TAS arrangement, the liability for tax and NICs is ‘taken over’ by the business providing the benefit on a grossed-up basis and the social media influencer, does not have to declare that payment on their tax return.