By Karen Robb, Partner, Transaction & Specialist Tax, Grant Thornton
It’s an old adage that regulation lags behind innovation, and that’s certainly true of modern marketing.
You don’t need me to tell you how influencer programmes have evolved from an experimental tactic into a core part of the marketing mix. As the industry has matured, so too have the rules governing advertising, disclosure and transparency. Tax now appears to be next on the list.
HMRC is currently examining whether goods, services and experiences provided to influencers should be treated as taxable supplies for VAT purposes, even when it comes to ‘gifting’. Many brands have already received requests for detailed information on who receives gifts, how recipients are selected, whether activity is monitored and what happens if an influencer doesn’t post.
At the heart of HMRC’s enquiries is a simple question: if a business provides something in the expectation of publicity, has it really given away a free gift, or has it effectively paid for a marketing service?
The challenge is that VAT rules were written for a world of invoices, contracts and money changing hands. Influencer marketing doesn’t operate like that.
So, what does this mean for your campaigns, and how can you protect yourself from an unexpected tax bill?
When a ‘gift’ isn’t just a gift
While HMRC’s enquiries suggest a clear direction of travel, the legal position is far less straightforward.
Our view is that genuine gifting, where there is no contractual obligation to post or provide anything in return, should not attract VAT. That position is supported by long-standing legal precedent.
In the landmark EMI Records case, the European Court of Justice considered whether promotional CDs and concert tickets distributed to DJs constituted payment for advertising services. The court concluded they did not. Many believe the same principle should apply to influencer gifting today.
However, the creator economy has many nuances that simply didn’t exist when that judgment was handed down.
The grey areas brands need to understand
The biggest challenge is that many influencer relationships sit somewhere between completely informal gifting and a formal commercial partnership.
Take monitoring, for example. If a business simply sends an unsolicited product with no expectation of coverage, the arrangement looks very different to one where marketing teams actively monitor whether influencers post, track engagement, or quietly remove creators from future gifting lists if they fail to deliver content.
None of those actions amount to a written contract, but collectively they may suggest an implied commercial relationship.
Experiences raise even more complicated questions.
A beauty product or an item of clothing has a relatively straightforward cost attached to it. But how should HMRC value a ‘priceless’ experience like a Formula One paddock pass, backstage concert access or hospitality at a major event?
What should brands do now?
HMRC is still in the information gathering phase, no formal policy has been issued and there remains genuine debate over how existing VAT rules should apply to influencer marketing.
However, uncertainty doesn’t mean that brands should sit back and wait. Now’s the time to take stock of how campaigns and programmes are managed on a day-to-day basis.
Questions worth asking include:
- Is gifting genuinely unsolicited, or is there an expectation that content will follow?
- Are recipients monitored after products or experiences are sent?
- Is future gifting influenced by whether someone posts?
- Are internal teams documenting activity in a way that could imply a commercial arrangement where none formally exists?
The answers won’t necessarily point to a potential tax liability, but it will identify processes that deserve greater clarity should HMRC come knocking.
The financial implications are also worth considering. HMRC can look back up to four years for VAT assessments, meaning any change in interpretation could create significant retrospective exposure for organisations running large-scale influencer programmes.
A tax system catching up with the creator economy
This isn’t just a debate about VAT, but whether the current tax system can keep pace with an economy where value is increasingly exchanged in much less conventional ways. The challenge for HMRC is finding a framework that protects the tax base without applying rules that were written for a very different economy.
Businesses need clarity. Marketing teams need to know where legitimate brand gifting ends and where a taxable supply begins. Without that certainty, organisations are left navigating a grey area where established industry practice may no longer align with regulatory expectations.
For now, there are more questions than answers.
One thing is certain, however. Influencer marketing is no longer an emerging trend. It’s an established business channel worth billions of pounds, and it was perhaps inevitable that HMRC would eventually turn its attention to it.
The brands that are best prepared won’t necessarily be those that stop gifting. They’ll be the ones that understand how their programmes operate, can clearly evidence why they have been structured that way, and are ready to demonstrate that if HMRC comes knocking.
