We have previously considered the tax implications that can arise from online trading through websites such as eBay, Gumtree and Vinted.

However, with companies increasingly using social media influencers as part of their marketing strategy and millennials often appearing to regard it as a genuine career option. It is sensible to also consider what tax implications arise for individuals and companies in this regard and, as with most things involving taxes in the UK, there isn’t necessarily any simple answer from a tax perspective. However, there are a number of factors that both individuals and the brands using social media influencers should consider in this regard.

Q When does influencing become a business?

Firstly, from an individual perspective, is it important to consider whether one is actually trading as a business. That is, for example, specifically developing a social brand with the aim of making income in this area.

Or is something purely a small-scale hobby? If it is the latter, you have no problem – activities from hobbies are not innately taxable. However, it is easy for something that is initially just a hobby to become something more substantial over time and hence something that becomes taxable. Moreover, it is often difficult to assess at exactly what stage something which was purely a hobby has become a business, so people should take care. Alternatively, it is quite possible that some social media influencers could in principle be held to have become employees of the brands they promote.

When considering whether you have a client who is a social media influencer and whether they are trading or not, it is necessary to consider their position with regard to the established badges of trade. These include:

• Whether there is a profit-seeking motive;

• The frequency of transactions;

• The nature of the asset(s) involved – e.g. is it something that is for personal pleasure or is it something that has a clear ‘business purpose’, such as plant and machinery;

• Does the individual make any changes to the asset;

• Are there sales and, if so, how are these done;

• The time between acquisition and sale;

• What financing does the business have and how is this arranged;

• How are the ‘sale items’ acquired; and

• Is there any links to this ‘trade’ to other activities that the individual is involved in?

In practice, however, advisers and taxpayers should take real care when considering these badges of trade. This is partly because no one test is all-important and some factors may not be present in particular cases. Moreover, the tests have developed over many years and a range of court rulings and are not designed specifically for the social media age or the new ways of working and trading this has created.

However, one could suggest that if someone is looking to promote themselves online with the idea of making a profit and has the equipment and is proactively working with businesses to promote their products, they could easily be involved in a trade.

Q What does trading mean from a tax perspective?

Typically this will require the individual social influencer to:

• Register as self-employed with HMRC and start completing annual tax returns; and

• Become liable for NICs.

It will also become necessary for the individual to ensure that they have proper business records, for example, to ensure that they can justify any business expenses they claim.

Advisers should also consider the wider issues. For example, if someone is a small-scale social media influencer and only earns say £5,000-£6,000 per annum from the trade, it may be appropriate to discuss class 2 NIC contributions with them, as a way to ensure that they qualify for a state pension.

Q What about taxed award schemes?

In some cases, social influencers may be able to avoid a tax liability on the gifts which they receive from suppliers and are expected to promote. This would be the case if the product supplier has agreed a Taxed Award Scheme (TAS) with HMRC. In that scenario, the liability for income tax and NICs has been ‘taken over’ by the producer and the social influencer and they do not have to declare that payment or product.

Q What about VAT?

Social media influencers are often not involved in invoicing clients for services in the way one sees with traditional businesses, though it is difficult to provide any absolute rules in this regard. As such, the VAT position for social media influencers should be considered case-by-case. However, the following points should be noted:

• Keep reviewing what the UK value of their sales are (i.e. is the £85,000 of VATable sales exceeded in the UK); or

• Are they involved in selling merchandise, for example, as an extension of their online brand with a specific catch phrase? If so, this could be a supply of goods for VAT purposes; and

• One needs to consider not just the UK VAT position but VAT in other countries (e.g. because the influencer is selling products from the UK into other markets).