HMRC Tightens VAT Enforcement on Gifts and Influencer PR

If you’re a business that works with social media influencers for help with promoting your products, you may have been issued with a VAT assessment last year.

Following increased scrutiny placed on the income tax affairs of online traders, gamers and social media influencers, HMRC is now looking at businesses that provide ‘gifts’ to influencers in exchange for promotion of their products.

What are the rules on gifts?

A business is allowed to provide goods free of charge to any person if those goods are below £50 in value during a rolling 12-month period, with no requirement to pay VAT. However, if the cost of these free gifts exceeds £50, output VAT needs to be paid by the business on the full cost of the goods.

The exception to this is when goods are provided as a ‘sample’, in which case no VAT is charged regardless of the total value of goods provided. HMRC considers goods to be a sample if they are provided as an illustrative or typical example of a product.

However, the interpretation of the rules covering ‘samples’ isn’t straightforward when it comes to online influencers.

Although a business could make the argument that goods are being supplied to an influencer in order for them to assess the ‘characteristics and qualities of that product’—part of the definition of a sample—this is difficult to prove without a formal agreement between the business and the influencer. HMRC may argue that an influencer doesn’t have the required expertise to assess the quality of a product, and that what they can offer a business is primarily the exposure they can give to a brand or product.

What about influencers based outside of the UK?

If you’re sending products to influencers that aren’t UK residents, this will not be subject to VAT. However, you will still need to consider the value of the services being received in return (i.e, the promotion of these goods on the influencer’s social media profiles) as they need to be accounted for under the ‘reverse charge’ adjustment.

Does HMRC consider goods sent to influencers as business gifts?

In HMRC’s view, a gift is considered to be a voluntary and unconditional transfer of goods and services with nothing provided in return—so are products sent to influencers considered as business gifts at all?

When a business sends a product to an influencer with an expectation that they will promote the product online—whether there’s a formal or informal agreement to do so—HMRC does not consider this to be a simple business gift, and therefore they are not covered by the standard business gift rules. Instead, HMRC views this as a barter transaction and a non-monetary consideration for the provision of advertising services.

HMRC therefore values the barter transaction using the normal retail selling price of the goods supplied, potentially increasing the VAT liability for a business significantly.

How we can help your small business manage VAT obligations

Are you a small business that uses social media influencers to help promote your products or services online? If so, we can help you navigate the complex and time-consuming task of managing your VAT affairs.

Our expert accounting team has extensive experience and knowledge of the VAT landscape, and we’re perfectly placed to help small businesses across all industries to become more VAT-efficient. We pride ourselves on providing clear and straight-forward advice in plain English that you can understand—not complicated legal jargon.

VAT services we offer include:

• VAT registration or deregistration
• Bookkeeping analysis
• VAT return submission
• VAT planning
• Handling VAT disputes
• Advice on staying VAT-compliant

To find out more about how we can help your small business remain within the rules governing gifts to social media influencers, and with your VAT liability generally, get in touch with our team today.