How to avoid tax evasion as an influencer

There's no such thing as a free ride, and anyone who makes self-employed cash must pay taxes. As a social media influencer or content creator who earns a regular income from platforms like TikTok, you must understand the tax implications, or you could face penalties.

To avoid tax evasion, you must register with HMRC once you make £1,000+ from your social media platforms. If you file annual income tax returns and pay what you owe on time, there's no risk of penalties. An accountant can ensure you pay the right amount of tax - not too little or too much.

If there’s someone you don’t want to be on the wrong side of, it’s the taxman, A.K.A. HMRC. They have crazy technology at their disposal and actively pursue and penalise those people they think are evading tax. If they find you guilty of dodging tax - even accidentally - you can face a hefty fine and even a prison sentence in extreme cases of non-compliance.

When it comes to tax, knowledge is power. This article will go through the basics of when and how social media influencers should register for tax. We'll also look at the difference between tax ‘evasion’ (which is illegal) and tax ‘avoidance’ (which is perfectly legal and what a good accountant can help you to do). 

Capture Accounting specialises in working with social media influencers, online sellers and other digital entrepreneurs. We help them understand their tax position and meet their tax liabilities while keeping as much of their hard-earned cash as possible.

Contact us today for an chat to make sure you're not doing inadvertently committing tax fraud!

When do social media influencers need to pay income tax?

Social media influencers are defined as people whose online presence can influence the purchasing decisions of others and are paid in return for promoting goods and services. In the eyes of the government, they are businesses just like any other and must pay tax.

If you make a regular income from creating content on platforms like Instagram, YouTube and TikTok, then you are a professional influencer and must register with HMRC for self-assessment. You will then be considered a sole trader, which is a simple type of business structure.

If that applies to you and you haven't registered, it's advisable to do so ASAP. While no tax is due until your total earnings exceed £12,570 (your annual tax-free allowance), HMRC will still expect to file a yearly income tax return.

What kinds of activities do social media influencers get taxed on?

If you receive money for online activity, including sponsored posts, ad revenue, brand endorsements or other promotional activity, it's deemed as a 'barter transaction' and is taxable.

If you receive free gifts in return for promotions, they may also be taxable, as they are considered 'payment in kind'. Therefore, most gifts need to be factored into your taxable income and declared on your tax return.

How do I calculate my taxable income as an influencer?

It's important to keep records of your income and expenditure, as well as any written agreements you have with brands. You can work out your taxable income by deducting allowable expenses from your gross income. This includes things like travel and internet costs. Read more about allowable expenses for influencers.

You will then be taxed at either 20%, 40% or 45%, depending on how much you earn. See the latest income tax bands and rates at gov.uk.

What is tax evasion?

Tax evasion, tax fraud, non-compliance...whatever you call it, it's tax dodging, plain and simple.

While you may have visions of cash-in-hand jobs and stashing money under the mattress, many tax evaders simply fail to tell HMRC when they receive money in their bank account. This is illegal.

Depending on the seriousness of the situation and how much tax is outstanding, you could get a huge fine or even face jail.

If you're asking yourself, "But could HMRC realistically catch me...?". Uh - yes.

How can evading tax affect influencers and content creators?

HMRC has some crazy-level supercomputers that crunch data and raise red flags when there are inconsistencies with their records. They have access to third parties like banks, companies, housing and land registries, social media platforms and e-commerce sites like Vinted and eBay. In fact, online sellers will now have their income declared to HMRC by the platform itself, so there is nowhere to hide.

HMRC can easily identify influencers with huge social media followings from which they would expect to generate a decent turnover. When they discover one and they are not registered for tax purposes, they can expect mail. Or even just suspect that you might be and send you a letter in the hope that you are!

Trust us - you don’t want to be on the receiving end of THAT letter from HMRC!

What is a 'nudge' letter?

A 'nudge' letter, also known as a 'warning letter,' is a letter or email sent by HMRC to taxpayers who they believe may have made errors or omissions in their tax returns. They remind the recipient of the tax consequences attached to trading activity and prompt them to acknowledge the letter and take action.

What happens if you ignore a 'nudge' letter?

Ignoring a nudge letter can have serious consequences. While they are sent as a gentle reminder, failure to respond or take appropriate action can lead to further scrutiny and penalties.

This puts you at risk from fines, interest on outstanding tax owed, legal consequences, and reputational damage. As an influencer, reputation is everything. If you are prosecuted for tax evasion, brands may not want to work with you in the future, and your influence could take a nosedive.

Tax evasion vs tax avoidance

Let's take a look at the difference between these two terms and how they can impact your earnings and reputation.

Tax evasion is basically when you try to dodge paying tax by hiding or underreporting your earnings, so you can keep more cash in your pocket. It's 100% illegal and can land you in some serious trouble (see above). As influencers, it's super important to play by the rules and report all your income to HMRC.

Now, tax avoidance is a bit different – it's all about playing smart within the rules to keep your tax bill low. Good accountants can help you put tax strategies in place, like finding the most tax-efficient structure for your business or identifying lucrative tax reliefs.

While it's totally okay to do this, getting professional guidance is crucial so you're not pushing the boundaries into evasion territory. That's why it's a good idea to team up with an accountant like Capture Accounting; we know exactly what is and isn't allowed and can keep you compliant while saving you money.

Conclusion

Social media influencers who make money online must understand their tax position to avoid penalties from HMRC. If you don't register for tax purposes and declare your earnings correctly, you could face a fine. Those who persistently evade tax can face legal action.

It's not smart to think you can't be caught - HMRC has access to many third parties from which they can detect any income you haven't declared. If they suspect you, you could receive a nudge letter, to which you must respond.

It is smart to hire an accountant who can ensure you pay the right amount of tax. They can also help you avoid paying too much tax by advising on your business structure and identifying expenses and reliefs to lower your tax bill.

Stay compliant and maximise your influencer earnings with expert tax guidance from a down to earth accountant at Capture Accounting. Contact us today to make sure you're on the right side of the law and how to legally avoid tax whilst keeping HMRC happy!