Guide to VAT for Influencers in the UK

What is VAT?

Unlike income tax, which is a tax on your earnings, VAT is a tax on consumption, i.e. the buying and selling of goods and services.

Here's how it works: if you're VAT registered, you'll charge VAT at the specified rate (currently 20%) when you provide services or sell goods. This might include anything from sponsored posts to merchandise.

For example, if you charge £100 for a sponsored post and are VAT registered, you'd bill your client £120, with the extra £20 being for VAT. You must pay this £20 to HMRC as part of your VAT return.

Being VAT registered also means you can reclaim the VAT you've paid on certain allowable expenses. But what does that mean? Stick with me here.

When do social media influencers need to register for VAT?

As a UK influencer, it's a legal requirement to register for VAT if your taxable turnover for the previous 12 months exceeds £85,000. Once you reach or expect to reach this threshold, you must notify HMRC.

After registration, you must charge VAT rates on your taxable goods and services, maintain accurate records, file VAT returns, and make timely VAT payments to HMRC. Completing and filing VAT returns can be a daunting task, but with professional guidance, it doesn't have to be. It involves submitting a quarterly report of your taxable sales and purchases.

Firstly, you declare your total sales, detailing the VAT charged to customers for their services or products. Next, you account for the input tax, which is the VAT you've paid on business-related purchases and expenses. The difference between the VAT collected from customers and the input tax paid is the amount of VAT owed to HMRC or a refund due to you.

Do you pay income tax separately from VAT returns?

Income tax and VAT are two distinct entities, each with its own rules and processes.

As an influencer, you'd submit an annual self-assessment tax return for income tax, whereas VAT returns are typically filed quarterly.

What do social media influencers pay VAT on?

In essence, influencers are considered to provide advertising and promotional services, on which VAT must be paid. Each time you collaborate with brands or companies for sponsored posts or mention products on your social media channels, there could be a VAT consequence.

If, for example, you're gifted items by businesses, HMRC considers it a barter transaction. You provide promotional services in exchange for goods, making it a taxable supply.

Let's look at some examples of the types of goods and services subject to VAT.

VAT on digital services

From e-books to online courses, if you're an influencer offering any form of digital service, you're stepping into the VAT territory.

For VAT purposes, these digital services are considered "electronically supplied services." Therefore, the location of your audience, particularly if they are consumers rather than businesses, can impact your VAT liability. When selling to UK consumers, the standard UK VAT rate applies (20%, but for EU consumers, the VAT rate of the consumer's country may apply).

This is an area where many content creators fall foul - not your fault because you aren't a VAT expert! But, most generalist accountants don't appreciate the need to do this because they are not specialists in this area - and it's impossible for them to keep up with the VAT implications of working with 57 different industries!

If you are selling digital services like e-books, digital plans, app subscriptions, online coaching etc then you need to consider this ASAP. Failure to report VAT to the EU countries where it's due can result in BIG fines. This is the biggest area of non-compliance we see when taking on clients from non-specialist accountants. If you want to have a chat to see whether this would apply to you and whether you're doing things correctly you can book a free call with us here.

VAT on collaborations and sponsored content

Collaborations and sponsored content are the bread and butter of many a social media influencer's income. Every time you create a piece of content on your social media platforms for a brand or perhaps showcase a product on your channels, it's essential to understand the VAT consequences. Sponsored content usually comes with a clear commercial benefit for brands, which means it falls under taxable income for VAT purposes.

When you enter into a formal contract or even an implied agreement with a brand, and they compensate you monetarily or through non-monetary consideration (like products or services), you're expected to charge VAT on the total cost of that agreement.

HMRC takes this seriously; they view these collaborations as a form of influencer marketing, which is very much a taxable supply. The key takeaway? Whether it's a huge social media campaign or a simple business gift, it might come with potential VAT liability.

VAT on merchandise sales

Many influencers expand their brand by selling merchandise. Whether it's a catchy slogan on a t-shirt or bespoke products, if you're selling goods, pass on the VAT cost to your customer based on the retail price of the items. This can significantly impact the profit margins for online creators, so it's vital to get ahead of it.

You also need to account for VAT on the cost price of receiving goods for promotional purposes in order to be able to reclaim it on your VAT return.

Is there VAT on YouTube adsense income?

Luckily, if you are receiving income from YouTube - adsense for ads appearing on your videos, that income does not fall within the scope of VAT. That means this income does not form part of the £85,000 'taxable income' threshold for VAT. Phew!.

That said, it might still be worthwhile you registering for VAT if you have expenses where you are paying VAT out - because you'd then be able to get that VAT back (assuming you are also providing other taxable service like sponsorships etc).

How does working abroad affect VAT obligations in the UK?

Ah, the allure of global fame! As your influencer star rises and your social media channels reach a global audience, you might land opportunities to work with brands and businesses outside the UK. Exciting, right? But there may be VAT implications.

When you provide advertising and promotional services to overseas businesses, understanding how much VAT, if any, to charge can be a bit tricky. Here's a rule of thumb: If you're supplying services to a business outside the EU, your services are usually outside the scope of VAT.

But for businesses within the EU, things can be a bit more complex. For online content creation and influencer marketing aimed at the UK audience, UK VAT will typically apply, regardless of where the business is based.

But remember, each country might have its own VAT rules and rates, and sometimes, understanding the HMRC values and their expectations can be like wading through a treacle. If in doubt, it's always best to consult with someone who knows – like us at Capture Accounting.

To find out about the VAT rules in Dubai check out our guide now.

How can Capture Accounting help VAT-registered influencers?

You've worked hard to cultivate a loyal audience on your social media platforms, and the last thing you want is to be bogged down by the intricacies of VAT returns. That's where we come in!

Capture Accounting is your trusted partner in navigating the maze of VAT for influencers. Whether you're issuing VAT assessments, deciphering business gift rules, or wondering about the tax implications on the goods supplied as part of your promotional services, we've got your back.

Expertise in VAT for influencers: We are specialist influencer accountants, so we understand the nuances of your business and your potential VAT liability. Whether you're collaborating with UK retailers or global brands, we help you understand your VAT position and how to account for VAT correctly.

Tailored advice for unique cases: Ever wondered about the VAT consequences of non-monetary consideration, like barter transactions? Or how does HMRC consider the commercial benefit of products sent to you? We have insights tailored to the unique needs of online creators, ensuring you're always ahead of potential pitfalls.

Ensuring compliance: With HMRC's keen eye on online traders and influencers, ensuring compliance is more vital than ever. Our team will ensure that you meet all HMRC expectations, reducing the risk of unexpected VAT costs and potential disputes.

Remember, VAT isn't just about what you owe; it's also about claiming back what you can. And with the right guidance, you can make VAT work for you, not against you!

Book a call with us today to find out how we can help.

Conclusion

Understanding VAT as an influencer isn't just about staying compliant; it's about making informed decisions for your brand and business.

As you branch out, collaborate, and evolve, so too do your VAT obligations. With the ever-changing landscape of social media and the business's brand collaborations, it's paramount to have a solid grasp of your VAT responsibilities.

Don't go at it alone – Capture Accounting is here to guide you every step of the way, ensuring that your VAT journey is as smooth and profitable as possible!

Get to know your tax obligations with Capture Accounting:

• What you should know about getting taxed on Google Adsense earnings
• Expenses influencers can claim
• Turning your influencing business into a limited company