Falkirk retailers who use social media may face hidden tax bills

Retailers who use social media to advertise their products may be hit with unexpected tax bills.

Tuesday, 25th May 2021, 10:01 am

According to leading tax advisory firm Blick Rothenberg the popularity of online social media has brought about a new way for HMRC to claim tax contributions from firms.

Fiona Fernie, Blick Rothenberga tax dispute resolution partner, said: “The explosion of social media, and our constant interaction the worldwide net has led to a significant increase in using ‘influencers’ to help sell products.

“One of the ways they do this is to provide products to the ‘influencers’ free of charge, in exchange for a review on social media. While this may appear to constitute a cheap form of advertising, there is a hidden cost – of which many retailers appear to be completely unaware.

Retailers who use social media to help advertise their products could face hidden tax bills

“The problem is the provision of goods to ‘influencers’ is typically held by HMRC to be a taxable benefit which attracts both tax and national insurance contributions (NICs), even where the ‘influencer’ is not an employee of the company providing the goods.”

Fiona advises providers of the goods need to set up a Taxed Award Scheme (TAS) with HMRC to deal with the liabilities on the goods they provide.

While providers of goods could take the attitude the “influencer” should report the benefit on their personal tax return, from a practical perspective, the provider is unlikely to obtain much traction with “influencers” if they take the view the “influencer” must pay the tax on the free goods and therefore, they mostly pay the tax as well as the NICs via their TAS.

Fiona said: “There are a number of obligations of the goods provider under a TAS, including issuing certificates to the recipients of the awards and making returns to HMRC at the end of the year.

"The total tax is due to HMRC within 90 days of the end of the tax year in which the awards were made.”

There are some exceptions where gifts can be made without needing to be reported. However, such exceptions would need to satisfy all of the following criteria – the gift consists of goods or a voucher not exchangeable for cash, the third party making the gift is not the employer or a person connected with the employer, the gift is not made in recognition of, or in anticipation of, the performance of particular employment services, the gift has not been directly or indirectly procured by the employer or by a person connected with the employer and the total cost of all gifts made by the provider to the recipient, or to members of the recipient’s family, during the tax year is £250 or less, inclusive of VAT.

Fiona said: “Although there is usually no employer/employee relationship between the goods provider and the social media ‘influencer’ which means that some of these criteria can be fulfilled, most of these arrangements will be caught because the ‘gift’ is made in recognition of a particular service, which HMRC deem in these circumstances to be an employment service.

“Retailers who provide incentives to social media ‘influencers’ need to be aware of the issue and include the tax and NIC costs in their budgets. If they didn’t know about the issue, they need to set up a TAS rather than wait for HMRC to ask questions.”