Do you have to pay tax on PR gifts?
Tax can be a confusing topic, particularly when it comes to gifting. As accountants, we are regularly asked by social media influencers if tax is payable on free products they receive. As with a lot of tax matters, the answer is not always straightforward.
When it comes to paying tax on PR gifts in the UK, it all depends on the type, value and purpose of the gift. It’s a complex subject, but understanding the tax implications of PR gifts is important to comply with tax legislation. It is wise to consult an accountant if you are unsure.
In this article, we will look at HMRC's rules on PR gifts and when you need to pay tax on them.
Capture Accounting is a dedicated accountant for social media influencers. We can provide valuable tax advice to help you maximise your profits. For help on completing tax returns and other time-consuming accounting tasks, please get in touch to request a callback.
Do influencers pay taxes?
If you are a hobbyist who earns very little or no money from your social media output, then you are considered a non-trading influencer and it's unlikely that you would have to pay tax.
If you monetise your channels (e.g. through paid posts, sponsored posts or advertising), then you should register with HMRC for tax once you exceed the trading allowance of £1,000. Once your trading income surpasses £12,570 (known as your tax free 'personal allowance') then you must complete a self-assessment tax return each year and pay tax on your income.
Certain expenses are tax deductible, meaning that you don't pay tax on them. For further reading, please see our blog.
Influencer businesses registered as limited companies pay Corporation Tax on their profits.
Do social media influencers pay tax on gifts?
The frustrating answer is - sometimes.
It is dependent on three things:
- Cash value
- Type of gift
- Purpose
To look at a simple scenario:
You receive a gadget from a tech firm worth £150 in return for promoting it on your social media channels.
In this instant, the gift is taxable and you must declare it in your annual tax return as part of your other influencer income. How much tax you pay depends on the percentage imposed by HMRC, which is currently 10%.
What does HMRC consider a taxable PR gift?
In its Business Income Manual, HMRC sets out the following criteria for determining whether a PR gift is subject to taxes.
Going back to our three points above in detail:
- Cash value - usually, if the PR gift is a tangible item (such as a product or service) and it is worth more than £50, then it is subject to tax (if it also meets the other criteria). Any gift given with a value of less than £50 is usually tax free.
- Type of gift - if the gift could be exchanged for a cash sum (and it meets the other criteria), then it is likely to be taxable. That includes tickets, hotel stays, spa treatments and trips. An exception may be if the tickets were non-transferable.
- Purpose - this is rather more clear cut. Simply, if you are given a free gift worth more than £50 in return for promoting a product (or brand, venue, event etc) in your social media posts, it is considered a form of non-monetary payment and is subject to income tax.
There are certain exemptions, such as gifts given for personal rather than commercial use, in which case the recipient must be able to provide proof. Other exemptions include gifts or benefits given to close family members and those given to registered charities.
It is very important to remember that it is your responsibility to consider the criteria above and determine whether a gift is taxable. If it is, you should report it to HMRC, or you could be subject to serious penalties.
How do you pay tax on free gifts?
As a self-employed sole trader, you must submit an income tax return at the end of the tax year. The tax year runs from April to April and your tax return is usually due by the end of April for the previous tax year.
If you have received PR gifts as 'payment in kind' to promote them on your channels, then you must declare it on your self-assessment tax return. The tax is calculated as a percentage of the total value of the gift or benefit received. This percentage is determined by the UK government and is usually set at 10%.
However, it is possible to reduce the rate of taxation by claiming certain deductions, such as the cost of the item received or any related expenses.
What happens if I don't declare a PR gift?
If you fail to declare a taxable PR gift, then you could face a penalty if HMRC were to inspect your income. If they deem it a simple error, the penalty will be between 0 and 30% of tax amount, but this can go up to 70% if HMRC believe you have tried to conceal it.
What does payment-in-kind mean?
Payment in kind (PIK), is a form of tax related to PR gifts in the UK. If you receive goods instead of cash in return for promoting a product or brand, it is considered income and should be declared along with your other income for tax purposes.
So, as a word of caution, always consider the implications of paying tax on a gift before you accept it. What might seem like a generous offer at the time might not be so rewarding if you struggle to pay the tax due on it at year end.
Get in touch with Capture Accounting today
At Capture Accounting, we’ll guide you on the taxation of PR gifts and help you understand the rules and regulations that apply.
If you have any questions about paying taxes on PR gifts in the UK, don’t hesitate to get in touch with us.
We will take the time to understand your specific needs and provide tailored advice to ensure you are compliant with all relevant taxation laws.
Download our free guide on the 7 biggest money mistakes influencers make!
Conclusion
When you receive any sort of PR gift as a social media influencer, it is your responsibility to determine whether it is taxable according to HMRC guidelines. If it is, you must declare it as income to HMRC as part of your tax return.
Not all PR gifts are subject to tax, however. A gift is deemed as income if it exceeds a value of £50, has a transferable cash value and was given in return for promoting a product or brand.
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Meet Reza
Reza is the Founder of Capture Accounting and also a content creator himself. He spends most of his time coaching and mentoring other accounting firm owners to build more profitable firms and do better for clients. You'll find him very active on LinkedIn.
