Retailers may get unexpected tax bills by using social media

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Retailers using social media influencers to advertise their products may face unexpected tax bills say tax and advisory firm, Blick Rothenberg. Fiona Fernie, a tax dispute resolution partner at the firm spoke to Business Leader about this issue.

The explosion of social media, and our constant interaction the worldwide net has led to a significant increase in using “influencers” to help sell products.

One of the ways they do this is to provide products to the influencers free, in exchange for a review on social media.  Whilst this may appear to constitute a cheap form of advertising, there is a hidden cost – of which many retailers appear to be completely unaware.

The problem is that the provision of goods to influencers is typically held 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.

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.  (Actually, 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).

Whilst 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 and therefore, they mostly pay the tax as well as the NICs via their TAS.

There are a number of 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.

There are some exceptions where gifts can be made without needing to be reported. However, such exceptions would need to satisfy all of 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 particular employment services.
  • The gift has not been directly or indirectly procured by the employer or by a person connected with the employer.
  • 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).”

Although 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, most of these arrangements will be caught because the “gift” is made in recognition of a particular service, which HMRC deem in these circumstances to be an employment service.

Retailers 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 didn’t know about the issue, they need to act quickly and set up a TAS rather than wait for HMRC to ask questions.

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