An interesting article explores the world of influencers and how they can transition into successful business owners, and manage their tax. It discusses the importance of careful planning and decision-making in this process, as well as the various considerations that influencers need to take into account when starting their own businesses. It also touches upon the benefits and drawbacks of operating as a sole trader versus establishing a limited company, the implications of different tax structures, attracting investors and accessing finance, hiring employees, and managing risk and liability. If you’re an aspiring influencer looking to turn your social media account into a business, this article will provide you with valuable insights and guidance.
Evolving Into A Business
Influencers, or social media content creators, have evolved from simply promoting other brands through their channels to creating their own brand and products, which they sell primarily through e-commerce platforms. Their impact on the economy can be compared to that of traditional entrepreneurs. Successful influencers-turned-entrepreneurs, such as Mrs Hinch and Joe Wicks, have leveraged their social media presence to build thriving businesses.
However, having a large following or a high number of views on platforms like TikTok does not guarantee a successful business venture. To achieve success, influencers need to implement the right structures and develop a well-executed business plan. One of the crucial early decisions influencers need to make is how to structure their business, whether as a sole trader or a limited company.
Operating as a sole trader is suitable for influencers starting out in their careers. This allows them to provide marketing services as sub-contractors for brands. In the UK, the majority of businesses (around 56%) are sole traders, and small and medium-sized enterprises (SMEs) make up 99% of all businesses. Sole tradership is a good option when income is relatively low, as the costs and compliance requirements are less burdensome. However, as an influencer’s income increases, careful consideration must be given to establishing a limited company.
Running a business through a limited company has several benefits, including easier access to investors, legal protection, better succession planning, and tax efficiencies. However, there are added costs and compliance requirements associated with operating as a limited company. These include preparing annual financial statements in a specific format, filing annual confirmation statements with Companies House, submitting corporation tax returns to HM Revenue & Customs, and maintaining business records to a required standard. The tax rate for companies is generally lower than personal tax rates for sole traders in higher earnings categories, providing additional appeal for influencers considering establishing a company.
Another important consideration for influencers is how they will be paid by their businesses. They can choose to receive a salary, dividends, or a combination of the two. Personal tax will be payable on any remuneration received. Establishing a limited company can enhance the credibility of a business and open doors to business loans, which may be a preferred way of raising capital for many influencers. Alternatively, influencers can seek private investment by offering an equity share in the company. While this would not result in interest charges, it would mean shared ownership of the business and potentially reduced dividend amounts for the owner.
As a business grows, influencers may need to hire employees directly. This is a significant step that requires careful consideration of factors such as salaries, compliance with National Minimum Wage requirements, determining the legal right to work in the UK, payroll administration, drafting employment contracts, and enrolling in a workplace pension scheme.
Finally, influencers need to consider the risk and liability associated with their businesses. Incorporating a company can provide protection and limit personal risk by creating a separation between the business and the influencer. Sole traders often turn to professional indemnity or public liability insurance to protect themselves and their assets. However, it may be more cost-effective to transfer business assets into a company and shelter personal assets.
Conclusion
Transitioning from an influencer to a successful business owner requires careful planning, decision-making, and adherence to the right structures. Influencers need to consider whether to operate as a sole trader or establish a limited company based on their income, compliance obligations, and long-term goals.
They should also evaluate the implications of different tax structures, weigh the benefits of attracting investors versus accessing loans, and carefully navigate the process of hiring employees. Managing risk and liability is another critical aspect for influencers-turned-business owners, and seeking guidance from experts and advisors can greatly aid their journey. By taking these factors into account, influencers can increase their chances of building thriving businesses and achieving long-term success.