Tag Archives: VAT-marketing

VAT and influencers

By   14 March 2024
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A Warning

There has been a great deal of debate on the subject of VAT and influencers, with HMRC issuing assessments for underdeclared output tax on “gifts” received by them.

What is an influencer?

An influencer is someone who has certain power to affect the purchasing decisions of others because of their; authority, knowledge, position, or relationship with their audience. These individuals are social relationship assets with which brands can collaborate to achieve their marketing objectives.

In recent years the growth of social media means that influencers have grown in importance. According to recent statistics, the projected number of global social media users in 2023 was 4.89 billion. This is a 6.5% rise from the previous year.

What is the VAT issue?

Business gifts to influencers

A business is not required to account for VAT on certain dealings if they meet certain conditions. For free gifts, the condition is that the total cost of all gifts to the same person is less than £50 in a 12-month period. Further, if the goods are “free samples” – used for marketing purposes and provided in a quantity that lets potential customers test the product, then the £50 rule does not apply. If an influencer receives free gifts or samples, there are no VAT implications for them.

HMRC Action

However, we understand that HMRC has decided that, in the majority of cases, the supply of goods to influencers were not ‘free gifts” but rather consideration for a taxable supply of marketing or advertising. They were also not considered free samples as, generally, influencers would not be in the position to test the goods, having no expertise in the field. It is also concluded that influencers, in most cases were “in business“.

The payment for the marketing, promotion or advertising services (the VAT treatment is similar, regardless of how the services are categorised) is by way of the supply of goods, rather than monetary consideration. That is; consideration is flowing in both directions. Consequently, output tax is due on this amount if the influencer is, or should be, VAT registered.

What is the value of the supply?

Non-monetary consideration

Non-monetary consideration includes goods or services supplied as payment, for example in a “barter” (including part exchange) agreement. If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration. Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply is deemed to be for such part of the consideration as is properly attributable to it.

In determining the taxable amount, the only advantages received by a supplier that are relevant are those obtained in return for making the supply should be recognised. Non-monetary consideration has the value of the alternative monetary payment that would normally have been given for the supply.

VAT Registration

If an influencer receives gifts valued at over £90,000 in any 12-month period, or these gifts plus other monetary consideration, VAT registration is mandatory.

More on business promotions here.

VAT: Input tax recovery – whether a taxable supply. The Door Specialist case

By   9 June 2021
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Latest from the courts

In the First Tier Tribunal case of The Door Specialist Limited (TDSL) the issue was whether an HMRC assessment for overclaimed input tax was correct.

Background

The appellant recovered input tax on the import of goods (doors). The company did not sell the doors, but simply gave the goods (no consideration provided) to a separate company called Just Doors (JD).  It was JD who made the sales of the doors to third party customers.  TDSL and JD were under common ownership but no VAT group in place at the relevant time. TDSL was VAT registered as it made separate, unrelated taxable supplies of property rental

Arguments

HMRC contended that as there was no onward taxable supply of the doors by TDSL, no input tax was recoverable per The VAT Act 1994 section 24 (1). TDSL relied on HMRC’s published guidance (Notices 700 and 700/7) in relation to gifts and proposed that it would be proper to assess for output tax on the “supply” to JD rather than denying the input tax claim.  

Issues

The issues may therefore be summarised as whether;

  • the relevant goods were used for the purpose of any economic activity by TDSL
  • the doors could be treated as business gifts as contended by the applicant such that the input tax was recoverable.

Further cases on economic activity/business here, here and here

Decision

It was decided that as there was no direct and immediate link between the purchase of the goods and any onward taxable supply in the course of business or economic activity by TDSL (as required by the outcome of the cases of BAA Ltd JDI International Leasing Ltd) the disallowance of the input tax was appropriate. The advancement of the business gifts contention did not assist the taxpayer as this was not an economic activity in itself. The appeal was therefore dismissed.

 Commentary

A clear example of not considering the VAT implications when carrying out transactions. This tax cost could have easily been avoided if TDSL had sold the doors to JD. As both parties were fully taxable, there would have been no VAT hit. Business gifts and promotional activities are also often a complex area of VAT and as one former colleague once remarked “If you have a marketing department you have a VAT issue”.