HM Revenue & Customs is writing to thousands of online traders, gamers and social media “influencers” it suspects have not paid the right tax for money earned online.
As part of the UK tax agency’s latest attempts to keep up with the rapid expansion of the digital economy, HMRC is writing to 2,300 online “content creators”, who make money or receive gifts for posting material on platforms such as Instagram, TikTok and YouTube.
This includes people who have a large following and receive gifts from businesses in exchange for promoting their products, as well as those who get paid by platforms on the basis of the levels of engagement their content receives.
HMRC plans to send a further 2,000 so-called “nudge” letters to people who sell goods and services through online marketplaces such as eBay, Facebook and Etsy. The tax authority said letters are sent to people “who we believe may owe us tax”.
Online content creation and marketplace trading has exploded in recent years. A study by software company Adobe last year found that the number of “content creators” in the UK had doubled to about 16mn in the UK between 2020 and 2022, most doing so as a side hustle, with 65 per cent in other full-time employment.
However, experts say awareness of the tax due from many people earning money from their online content is low, particularly among those in their teens and twenties. Adobe’s report found that some 2.8mn UK “influencers” earned about £120 per hour on average.
“It’s not because they are avoiding tax on purpose — it’s because they literally don’t know they should be paying it,” said Jessica Narweh, a 25-year-old business coach and influencer who previously trained as a tax adviser. “The main focus is how can I get followers — I don’t think tax even crosses their mind until they see another influencer talking about it.”
Narweh said many young people, particularly those without other employment, think they do not need to report earned online income until it exceeds the income tax-free allowance which is currently £12,570 a year. In fact, online income above the £1,000 tax-free trading allowance must be reported.
She added that people also often do not realise that the tax position for UK-resident content creators is the same no matter where in the world their revenue is sourced.
Emma Rawson, technical officer at the Association of Taxation Technicians, added that there is a lack of awareness around the need to pay tax on free products given to influencers for promotional purposes. “Normally, you would have to work out what it’s worth and how much tax you owe,” she said.
HMRC did not disclose how much tax is missing from online platform earners. But Adam Craggs, tax partner at law firm RPC, said HMRC must think there is a “sizeable chunk of income going untaxed from individuals making large sums of money”.
Craggs said a 21-year-old computer game programmer had been in touch with RPC a couple of weeks ago, having received a nudge letter from HMRC. He had earned a six-figure sum selling video games online last year, and had not considered the potential tax implications.
“These are very creative, young talented people who are very proficient at programming and have commercialised it — before you know it they are receiving quite sizeable income,” Craggs said, adding that one young person who approached RPC owed tax for games he had made money from since he was 16, spanning five tax years.
Money earned through online platforms is subject to income tax and has to be declared in a self assessment tax return, unless you decide to set up a company, when you would be liable for corporate taxes.
People who make a profit from their online activity will be viewed as trading by HMRC and need to register with the tax authority and complete a self-assessment tax return if their gross income is more than £1,000.
Even if you are not carrying out social media activities for the specific purpose of making a profit, if your gross income from those activities (plus any other trading and miscellaneous income, not just online revenue) is more than £1,000 per year, HMRC say you still need to report it.
Recipients of an HMRC nudge letter should not ignore them, say tax advisers. The tax authority gets information from online platforms and also carries out investigation work. If you co-operate fully to pay tax owed, any penalties incurred will be lower than if you resist. A penalty will not normally be charged if the mistake was not deliberate and you co-operate.
If you cannot afford the tax bill, you can arrange a late payment plan with HMRC, but interest will be charged.
HMRC said its nudge letters were “routine activity”. It added: “We believe our customers want to pay the right amount of tax, so we are taking steps to help people do so.”