DO YOU KNOW WHAT YOUR TAX OBLIGATIONS ARE?
If you post content online, and receive payment or ‘freebies’, and promote these products or services, then you should be declaring these in your tax return as income.
Why? Continue reading to find out.
My Mobile Accountant can provide the advice, tools and support you need to fulfil your tax obligations.
What are Influencers?
Influencer: a person with the ability to influence potential buyers of a product or service by promoting or recommending the items on social media. "influencers can add serious credibility to your brand"
Influencers in social media are people who have built a reputation for their knowledge and expertise on a specific topic. They make regular posts about that topic on social media channels, and generate large followings of enthusiastic, engaged people who pay close attention to their views.
Social Media Influencers- by numbers
Mega-Influencers- generally have more than 1 million followers, often celebrities.
Macro-influencers - between 40,000 and 1 million followers, and have a high profile and can be excellent at raising awareness. This is the category most likely to engage in influencer fraud, such as buying followers.
Micro-Influencers- generally have between 1,000 and 40,000 followers on a single social platform, and are considered ordinary people who have become known for their knowledge about some specialist niche, and have built up specialist followings, and they will not want to harm their relationship with their fans if they are seen to promote a lemon.
Nano-Influencers- generally only have a small number of followers (fewer than 1,000), but they tend to be experts in an obscure or highly specialized field.
Other types are bloggers, youtubers and podcasters (content creators) and gamers.
The Inland Revenue have raised a discussion document “to provide guidance to online gamers, streamers, bloggers, influencers and other online content creators, to help you understand your tax obligations and get things right from the start.”
A content creator may have a wide variety of income sources, including:
-payments from platforms based on the number of times content is viewed, or the amount of subscribers/ followers they have.
-payments for promoting products or brands in the content creator’s online
content, or advertisements embedded in the online content.
-commissions earned from affiliate marketing and links.
-sales of merchandise or other products or services through ecommerce platforms.
-donations or gifts; and prize money (eg, from e-sports competitions).
A key point is that “gifts” or “donations”, non-monetary items (or contra) can be income.
It is common for content creators to receive payments from people through online payment or donation platforms. These payments might be described as “gifts” or “donations” but the label given to a payment does not determine its character nor whether it is income to the content creator.
In some cases, a content creator may be able to establish that a payment received is not a product of their content-creation activity. However, the burden of proving this is on the content creator.
Non-monetary receipts (or contra) and gifts can be income
-Non-monetary receipts given to content creators are sometimes referred to as “contra”.
For example, if a content creator is sent a bottle of moisturiser by a cosmetics company, this could be income for the content creator.
Convertibility – whether the receipt (contra) can be sold
-To be (classed as) income, a non-monetary receipt must be able to be converted into money.
Whether a receipt can be turned into money will be determined by the nature of the thing received and the rights and obligations between the provider of the thing and the content creator. The general rule is that if a thing received as a product of a content creator’s income-earning activity can be sold, the content creator will have Income.
Income arises on receipt even if the person does not sell the item. If the person does sell the item, this is a separate taxation event. If the item is sold, the amount received can also be income. That is, income can arise twice: once on receipt of the item and again on sale.
Online content creators (can) have multiple sources of income, so content creators need to consider their activity as a whole, and consider their own circumstances in working out whether the amounts they receive are income.
Generally, at the end of the tax year, a content creator needs to inform Inland Revenue
of any income they earn from their content-creation activities.
If a content creator has an income-earning activity, they may be able to claim deductions for expenses and depreciation losses. To be deductible, expenses or losses must be incurred in deriving income. This means a relationship must exist between the expense and the business or income-earning activity.
It is important for online content creators to keep good records. Failing to keep good
records is risky.
Important Note: The Inland Revenue has not yet ruled that Influencers and Content Creators must declare and pay income tax on gifts, but it is considered to be only a matter of time. As such, those concerned should be recording receipt of such gifts or payments now.
This is where My Mobile Accountant can help. We can provide advice and help you work out what your obligations are, and provide tools such as Xero to make it easier for you.
Get in touch with us today!
The following sources were used for this article.