Do influencers and online content creators need to charge VAT?

by | May 21, 2024 | Business, VAT

The rise of social media platforms like TikTok has created a new breed of entrepreneurs known as content creators.

You’re likely to have seen content creators on social media platforms such as YouTube, Instagram, TikTok, and Facebook. They create and share a wide range of content, including videos, photos, live streams, and podcasts, on topics ranging from lifestyle to beauty, fashion, gaming, cooking, fitness, technology, and more. If you check your social media profile now, you will likely follow several influencers and content creators who post about your favourite topics or hobbies.

These content creators often collaborate with brands, post sponsored content, and engage with their audiences through comments, likes, shares, and subscriptions. They play a significant role in shaping trends and influencing consumer behaviour while entertaining audiences. Many of us have already purchased online based on an influencer’s recommendation or review.

These individuals wield considerable influence over their audiences and have turned their passion for creating engaging content into a lucrative career. This has grown into an industry itself; between 2019 and 2023, influencer ad expenditure in the UK more than tripled, reaching £791 million at the end of this period.

But like with everyone, as an influencer’s earnings grow, so do their tax responsibilities. When a content creator’s business increases, the question arises as to whether they need to charge VAT on their earnings.

 

How do content creators earn money?

As content creators build up a following on social media platforms they create a wide range of content. As their online audience develops, content creators use this to monetise their presence on these platforms through various means. There are quite a few ways that they do this, as an influencer’s business can develop many different revenue streams from different sources, a few of these are listed below:

  • brand sponsorships
  • affiliate marketing
  • ad revenue
  • product sales
  • monthly subscriptions

One common way content creators earn money is by creating paid advertisements for brands, where they promote products or services to their followers on behalf of a business.

 

Registering an influencer business for tax 

If your earnings from content creation exceed £1,000 in a tax year, you are required to register as self-employed with HMRC. This can be done online through the HMRC website, and you’ll need to keep track of your income and expenses for tax purposes.

However, instead of registering for self-employed tax, a content creator could register a company as the legal entity for their business. Creating a company instead of being registered as self-employed can offer content creators certain tax advantages. By forming a limited company, content creators can benefit from reduced personal liability as the company becomes a separate legal entity. This means that the creator’s personal assets are generally protected in the event of business debts or legal issues. It is easier to think of it as the business getting separated from the influencer who owns it, so it stands on its own, which gives a clear divide from the business owner’s personal finances.

Operating as a company allows for greater flexibility in managing finances, as owners can choose how and when to distribute profits, potentially resulting in more tax-efficient arrangements. However, there is a downside, as forming a company also brings additional administrative responsibilities, such as filing annual accounts and adhering to company regulations.

Ultimately, whether a content creator forms a company or registers for self-assessment as a more suitable option depends on various factors, mostly it is down to their own preference, but some things to think about in choosing this depend on the creator’s earnings, business structure, and long-term goals. You can take time to think about which option is the right one for you, you can even start as self-employed and grow into a company, using a mix of both structures.

 

Understanding VAT

VAT, or Value Added Tax, is a consumption tax applied to goods and services. In the UK, businesses that have a taxable turnover above the VAT threshold (which is currently £90,000) must register for VAT with HMRC. The current rate of VAT in the UK is 20%.

 

How does VAT impact content creators?

As a content creator, if you’re providing paid advertising services to brands such as on TikTok for example, and your turnover exceeds £90,000, you’ll need to register for VAT. This means you’ll have to charge VAT on your services and pay it to HMRC, while also keeping track of the VAT that you pay on any business expenses that you make, this is because it can be offset against any VAT that your business charges your clients.

 

What does this mean in practice?

Let’s say you create a sponsored video for a brand on TikTok and charge £500 for your services. If you’re VAT registered, you’ll need to add VAT at 20% to your fee. This means your total charge to the brand would be £600 (£500 for your services plus £100 VAT), and you’ll need to account for the VAT in your quarterly VAT return.

 

Steps to become VAT compliant

Our accounting team at Freedom In Numbers has prepared some tips for content creators below to map out your journey to VAT compliance:

  1. Monitor how much you earn: Keep track of your income from content creation and monitor whether it exceeds the VAT threshold.
  2. Register for VAT: If your taxable turnover exceeds £90,000, register for VAT with HMRC.
  3. Charge VAT to your clients: Once registered, charge VAT on your services as required and issue VAT invoices to your clients.
  4. Keep your records in order: Maintain accurate records of your income, expenses, and VAT transactions for VAT returns.
  5. Get your VAT return submitted: File your VAT returns quarterly, declaring your VATable sales and reclaiming VAT on eligible expenses.

By following these steps, content creators can ensure they’re compliant with VAT regulations while continuing to grow their businesses on TikTok and other platforms.

In addition to VAT, content creators need to keep in mind other taxes, such as income tax and National Insurance contributions.

Income tax is payable on profits earned from content creation activities once they exceed the personal allowance threshold, which is £12,570 for 2023/24. National Insurance contributions may also be due depending on your employment status and earnings, so when you are looking at your tax, you need to look at the whole picture!

 

Influencers, content creators and managing VAT 

While content creation offers exciting opportunities for influencers, it’s essential to stay informed about tax requirements like VAT to operate legally and responsibly in the digital landscape. There is great earning potential in this new sector, but that comes with tax responsibilities that it is crucial to keep up with.

Content creators should consult with an accountant, such as our team at Freedom In Numbers to determine the most appropriate tax structure for their circumstances, as well as to ensure that they stay compliant with tax regulations like VAT. An accountant can take the stress of tax management away from you and leave you to do what you do best, create the content that your audience loves.

 

Related Services:

VAT

Corporation Tax

Self Assessment

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