Preheat oven to 350°F (175°C) and line a muffin tin with cupcake liners. In a bowl, whisk flour, baking powder, and salt.
In a separate bowl, beat butter and sugar until light and fluffy (about 2 minutes). Add eggs one at a time, then stir in vanilla. Gradually add the dry ingredients, alternating with milk.
Mix until just combined. Fill each cupcake liner two-thirds full and bake for 18-20 minutes, or until a toothpick comes out clean. Let cool completely.
Beat softened butter until creamy. Gradually add powdered sugar, vanilla, and heavy cream.
Beat on high for 2 minutes until smooth and fluffy. Divide into bowls and color with food coloring for the gnome hats and beards.
Pipe the gnome’s beard using a star tip in a zigzag motion around the lower half of each cupcake. Use a round tip to pipe a tall, whimsical hat.
Place a white candy pearl for the nose where the hat and beard meet. Add fondant flowers or sprinkles for extra charm.