2 big tax issues of 2021: influencers and cryptocurrency


2 big tax issues of 2021: influencers and cryptocurrency

Senior tax consultant John Lewis looks at two burning tax issues of the day – using social media for income and the rise of cryptocurrencies – and what HMRC is doing about them.

Tax issue 1: social media influencers

Social media is engrained into most of our everyday lives. We use it to stay in touch with family and friends, to keep up to date with current affairs and to tell everyone what we’ve been doing.

But for some, it’s much more than that – it’s their livelihood. ‘Influencers’ produce regular content on all manner of subjects – travel, pets, cosmetics, fashion to name a few – and can be paid incredibly well for it.

Social media provides several potential income streams for these influencers, including payments from social media platforms, the sale of merchandise and of course the payments or rewards from third parties in return for endorsements and/or advertising.

However, influencers may not be so familiar with the tax obligations arising from their social media activity. Successful influencers can make significant profits – not least due to the limited costs involved – so may face substantial tax liabilities.

Like any self-employed person, influencers must file self-assessment returns by 31 January following the end of the tax year in which the activity took place. Penalties for failing to meet tax obligations can be steep, so influencers should make sure they are aware of what they need to do, and when.

Tax issue 2: the rise of cryptoassets

'Cryptoassets', more commonly known as cryptocurrency, are a relatively new area and very little was known about them a decade or so ago. But now some of the world’s most valuable companies – together with some well-known individuals – hold significant amounts of cryptoassets, while others are beginning to accept them as payment for the provision of goods or services.

HMRC call them cryptoassets because it doesn’t consider them to be currency or money. However, any gains made on the disposal of the assets are taxable.

In the vast majority of cases, particularly for individuals, this will be under the Capital Gains Tax rules, so you must notify HMRC of your liability to tax on gains made within six months of the end of the tax year in which they arise.

One of the best-known cryptoassets is Bitcoin, which dramatically increased in value during 2017 and 2020. Investors stood to make significant gains if they had disposed of tokens during these periods. With regard to 2020, there may still be time to notify HMRC of any tax liability; for investors, a disclosure is likely to be required.   

So, what’s HMRC doing in these areas?  

HMRC’s compliance activity in both areas is increasing, with the tax authority keen to be at the forefront of these relatively new areas.

It will likely use its bulk data-gathering powers under Schedule 23 of the Finance Act 2011 to approach data-holders to assist in this regard. For example, cryptoasset exchange platform Coinbase recently confirmed it had provided HMRC with data of its customers who received more than £5,000 from cryptoassets in the tax year that ended 5 April 2020.

The key is to be proactive in checking that your, or your clients’, tax affairs are in order, making any voluntary disclosures where appropriate, as this will significantly reduce any penalties from HMRC. A recent report by the Office of Tax Simplification makes it clear that Capital Gains Tax rates are likely to remain under review so it’s vital to ensure that capital losses are claimed correctly.


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Published on
August 25, 2021