Subscriber OnlyYour Money

‘I wouldn’t have done that if I’d known’: Influencers wise up to potential tax bills

Influencers might think twice if a #gifted stay results in a €400 tax bill

Influencers now find themselves under much closer scrutiny on advertising standards and also tax on income and benefit in kind. Photograph: iStock

Fiona Reddan's face
Fiona Reddan
Tue Feb 13 2024 - 05:00

If you’re on social media, you’ll be familiar with the pitch. An influencer, or content creator, opens a box in front of the camera and proceeds to try out the new make-up or try on the new clothes they’ve been #gifted, exclaiming all the time about how good they are. Or maybe they mix a cocktail, or sample a restaurant, or stay in a hotel, or get their hair done, all the while filling your screen with the delights of their experience.

But were those products and services gifted or bought? Is the influencer getting a payment to promote the product? Do they disclose that they are, in fact, advertising? And should they be taxed on either or both of these things?

Until recently, the brave new world of influencing was a little outside the realm of taxes and advertising standards. Now, however, changes are afoot to bring a level of professionalism to the “influencer” sector, as both Revenue and the Advertising Standards Authority of Ireland (ASAI) step up their oversight.

And it could have far-reaching implications for the business of influencing.

READ MORE

Taxes

As with all income, payments made to influencers are taxable in the same way as all self-employed income is – if you earn €5,000 or less from non-PAYE sources, you are deemed to be a “non-chargeable” person by Revenue. That means you will pay your taxes via Form 12. Income in excess of this means that a Form 11 (self-employed) needs to be filed.

Not only this but these social media stars could also have a benefit in kind liability on the gifts they receive – and subsequently publicise – on their accounts.

It’s a new area now not just to the tax authorities, but to the content creators themselves.

“Some of the people are actually very young and have probably no real understanding of the thing,” Revenue chairman Niall Cody recently told the Dáil Committee of Public Accounts (PAC), adding that Revenue gets information on payments made to influencers from the companies paying them.

“We pay attention,” he said.

The Revenue’s approach thus far has been first to send a letter reminding the content creators of their tax liabilities. This may be followed by an audit compliance intervention, if they’re not happy with the follow-up.

[ Influencers warned by Revenue over fully declaring income ]

Last year, Revenue wrote to 142 influencers, warning them that income, gifts, free goods and services, virtual currency or token payments needed to be properly accounted for. Subsequently, it got back in touch with 78 of these content creators with a letter “intended to challenge noncompliance by the taxpayer” about non-declaration of income.

Alan Purcell, of accountancy and tax advisory business CloudAccounts, says Revenue’s approach to date has been “pretty much a prod to get your house in order”, adding that it is similar to the tax authority’s move on Deliveroo drivers last year.

It’s easy for the Revenue to know who they are targeting as influencers “are not exactly hiding” the things they promote, says Purcell.

Take a stay in a hotel, something that proliferates on social media. The hotel may have a room free anyway, so are happy to gift it, and will throw in a meal and bottle of champagne as well. The influencer will shoot a video and promote it but may not receive any payment for doing so.

The payment comes in the benefit they have received – and if the benefit was of the order of €800 or so, it could mean a tax liability of more than €400 on the stay.

“Revenue can look at it and say: ‘€800 worth of goodies, we’ll tax you on that’,” says Purcell. So this “free” stay may have turned into a tax bill for the unwitting influencer.

Or how about someone receiving a car for their personal use as part of a brand ambassador deal? It is something we now know many RTÉ stars have received in the past for example. But, as with other deals, there is a taxable element to it.

You can’t pay a mortgage or put food on the table with a night in a hotel

—  Alan Purcell, CloudAccounts

“Instead of the media personality sending an invoice for their services and getting paid in cash, they’re getting paid in lieu,” says Purcell. And if a car has a value of say €10,000 a year, it could be costing the personality/influencer about €2,600 in tax each year.

From a cash flow perspective, such gifts can be “brutal”, says Purcell.

While there are undoubtedly influencers out there who are “absolutely coining it”, he says, many see it as more of a side hustle, a way of making a bit more money on top of their regular PAYE job. Since the Revenue letters, some of them have told Purcell: “I wouldn’t have done that if I’d known”.

He has some sympathy for the smaller operators, who may have enjoyed a number of free hotel stays, or smaller gifts, in recent years – but not much of an income – and are now discovering they may have a tax liability arising out of this.

“You can’t pay a mortgage or put food on the table with a night in a hotel,” he says.

When it comes to gifts, Olive O’Donoghue, a tax partner with KPMG, says that if the influencer is providing any type of service in return for the #gift, then it’s likely to be considered a source of income that would be taxable under normal income tax rules.

“The fact that what they receive is something ‘in kind’ such as free product etc instead of cash wouldn’t change that position. There appears to be some misconception out there that income tax only applies where you receive a cash payment which isn’t the case,” she says.

But what if the #gift just arrived to the influencer’s door, unsolicited? O’Donoghue said, if the gift is sent in the hope that the influencer might like the product and promote it on their social media, but the influencer is under no obligation to do so, “there should be grounds to apply the gift tax rules rather than income tax rules”.

A small gift exemption under the rules governing gift tax – formally known as capital acquisitions tax – allows someone to receive up to €3,000 per donor per year in gifts, with no tax liability.

Advertising standards

Tax is not the only area where influencers are coming under pressure. Last year, the ASAI stepped up its oversight of the sector, issuing new guidance in conjunction with the Competition and Consumer Protection Commission (CCPC).

And its new guidance, setting out as it does how influencers must label their reels and stories, may offer valuable insights to Revenue on the business of influencers.

In short, as the ASAI points out, “if you benefit from mentioning a brand on your social media channels, the resulting content is commercial content and this must be [made] obvious to viewers”.

Orla Twomey, chief executive of the ASAI, says the authority felt guidance was needed as there was a “clear lack of understanding” among users, as to what was influencer marketing, and how this advertising was being disclosed.

“People being advertised to need to know they’re being advertised to,” she says.

The ASAI has sought to simplify and clarify the language used to signal such advertising to a very small number of hashtags.

The ultimate sanction for us is the name and shame sanction

—  Orla Twomey, ASAI

As a result, in all commercial posts, consumers should expect to see the following words prominently displayed: #Ad (or #Fógra for Irish language posts); a platform-provided label, such as “Paid partnership”, or #Gifted (or #Féirín for Irish posts). The last option should only be used “when you receive unsolicited products or services, and the brand has not directly influenced your post”.

The use of the #gifted/féirín hashtags can be a bit confusing. Twomey says it should only be used if “something is sent to you, and you don’t have any obligation to do anything with it”.

All other hashtags must only be used in addition – and following – those listed above. These include #Collaboration, #BrandAmbassador, #PRinvite and #OwnBrand.

So how are the new rules working? For now, the approach of the ASAI has been to “build awareness”. But Twomey says that if it sees continued noncompliance, it has the option of bringing an investigation, which will name and describe the incident.

“The ultimate sanction for us is the name and shame sanction,” she says.

To assist on this front, the ASAI now has a dedicated platform for people looking to make an anonymous complaint about an influencer in relation to its guidance on marketing communications. You can access the form here.

And the platform has been busy. Since the middle of November, the ASAI says it has received some 1,300 notifications through it.

And it is not just influencers that need to be mindful of the new guidance.

“Advertisers do ultimately have the responsibility that the content they have caused to be created is compliant with advertising rules,” Twomey says.

Revenue Commissioners