Brand partnerships have become a cornerstone of modern marketing, especially for social media influencers. Put simply, they are a collaborative marketing agreement between a social media influencer and a brand. Influencers leverage their audience reach and credibility to promote the brand’s products or services, while brands gain access to a targeted audience and benefit from the influencer’s established trust.
Everyone’s happy (so long as advertising guidelines have been followed). The ‘value exchange’ is a simple one: influencers create engaging and ‘authentic’ content (posts, videos, stories) featuring the brand’s product or service. They might
review the product, showcase how they use it in their everyday lives, or participate in brand-specific campaigns.
Brands provide influencers with products, compensation (payment, discounts, etc.), and creative freedom within agreed-upon guidelines. The idea is that all benefit – but navigating the tax implications of these collaborations can feel like venturing into a labyrinth.
The tax treatment of a brand partnership hinges on your legal structure.
● Sole Trader Influencers: Most influencers operate as sole traders. This means you report your income through Self Assessment, paying income tax on your profits after deducting allowable business expenses. Brand partnership income falls under this category.
● Limited Company Influencers: If you’re a larger influencer with a limited company, the company itself is taxed on its profits at the corporation tax rate. Payments from brand partnerships become income for the company.
● Businesses: Businesses typically operate as limited companies. Payments to influencers are considered marketing expenses, deductible from taxable profits.
Tax Implications for Influencers:
● Income Tax: The income you receive from a brand partnership is added to your other taxable income and taxed at the appropriate income tax rate.
● National Insurance: Sole traders also pay National Insurance contributions, calculated on their profits after deducting allowable expenses.
● Expenses: Expenses directly related to fulfilling the brand partnership, like travel, props, or editing software, can be deducted from your income for tax purposes. However, personal expenses are not deductible. Keeping clear
records of income and expenditure is crucial.
Tax Considerations for Businesses:
● Corporation Tax: Payments made to influencers are considered marketing expenses and can be deducted from your company’s taxable profits, reducing your corporation tax bill.
● VAT: If your business is VAT registered, and the influencer is also VAT registered, you may need to account for VAT on the payment. However, this is a complex area, and it’s best to consult with a VAT specialist.
● IR35: If the influencer operates through a limited company but essentially acts as an employee, IR35 rules may apply. These rules ensure individuals working through limited companies pay similar tax as employees. Businesses should consider the nature of the partnership and seek advice to ensure compliance with IR35.
Types of Brand Partnerships and Tax Implications:
● Paid Posts and Sponsored Content: Income from paid posts and sponsored content is considered trading income for influencers and a deductible marketing expense for businesses.
● Affiliate Marketing: Income earned through affiliate marketing links typically falls under self-employment income for influencers, while for businesses, it’s a marketing expense.
● Product Placement and Gifting: Receiving free products for promotion can be considered a benefit-in-kind for influencers and may be subject to income tax. Businesses can claim corporation tax relief on the cost of gifted products, but
it might be capped.
It’s key to have a well-crafted contract outlining the nature of the partnership, payment structure, and expenses is crucial. It protects both parties and clarifies tax obligations – and, as always, maintaining detailed records of income, expenses, and contracts is essential for accurate tax reporting and potential HMRC audits.
Brand partnerships offer exciting opportunities, but understanding the UK tax implications is vital. By familiarising yourself with your tax status, allowable expenses, and potential pitfalls, you can navigate the tax maze with confidence and maximise the benefits of brand collaborations. We recommend, naturally, that you get good advice.
