So you’ve started making money from your art – do you need to pay tax?
Taxation advice is one of those things that a lot of people get down the pub.
Of course musicians spend a lot of time down the pub
so when they want to know about tax...
The problem is though that a huge amount of the advice is wrong, either because it is out of date, has been misunderstood, is inappropriate for the individuals' circumstances or the giver is drunk!
The fact is that pretending that tax doesn't exist is a pretty dumb thing to do. You won't get found out right away but the probability is that HMRC will find you sooner or later and then it gets messy and expensive.
You'll have to decide whether you need to declare your income or not and HMRC have a general rule that if you are intending to carry on business then you need to register even if you lose money. This can be a good thing because if you are working and performing then you could offset any losses against your day job tax but again take advice.
Looking at some examples;
- someone turning up at an open mic gets booked to do a one off gig and gets given some beer and a small amount of money wouldn't generally be classed as carrying on business.
- An artist who advertises themselves for hire, plays a mixture of paid and unpaid gigs, produces a CD that doesn't sell many could be said to be carrying on business even if they lose money and if there is a reasonable prospect of them obtaining more profitable work in the future as a result of their efforts. Think of a start up business that loses money in the first couple of years but then goes on to make a profit.
- A covers band that works the wedding circuit most weekends and only ever plays for money would definitely be carrying on a business.
- An artist who does a variety of jobs such as singing, depping as a guitarist, working as a sound man and booking acts for a venue could also be said to be carrying on business even though the business includes lots of different jobs types.
So the question is what should you do? Here's 7 tips for getting thing in order
- get advice - So go along and see a proper accountant. I know you don't want to, but getting a professional to look into the specifics of your situation will probably save the cost of any accountancy fees. Many firms will also do a free initial consultation so that you can check out whether you need one or not.
- get registered - If you are carrying on a self employed job then you need to make sure you register within 3 months or there could be a fine and/or interest to pay. If later on you go back to full time employment and never play for money again you can still cancel your registration but at least you won't get a penalty.
- save everything - keep every receipt, invoice, bank statement. In fact anything that shows money in, money out and you working. you'll regret it later if you can't claim for stuff that you really shouldn't be paying tax on.
- keep records - so once you have a big bunch of receipts then make sure you record them properly. Keep an invoice book so you can show what you have charged people. If you don't want to do bookkeeping yourself then there are plenty of self employed bookkeepers you can employ for a reasonable amount that will do this for you.
- keep a diary - a diary should be a must in your professional anyway to show your bookings but get into the habit of including extra info like fee charged, who you paid to play, and other costs you may have had. From practical experience I can tell you that this is a very useful thing to have as a back up to your bookkeeping because it gives you a cross check when there is any uncertainty
- Put money aside - If you start to make a profit then you are going to pay tax. Make sure you put a percentage of your income aside in a deposit account so that when it comes time to pay your tax bill you have the cash available. This is exactly how all those big stars get in trouble with the tax man, they get paid for jobs and think they can just spend the money.
- Treat it like a business - It is called 'show business' after all and if you want to make sure that you get the most out of it with the least number of hassles then you need to be business like. Get your stuff in order or pay someone to get in order for you.
There are some handy guides below to help you decide what you should be doing. Remember that all of the information you find on the web is general. You need to get specific advice for your circumstances so make sure you find a qualified experienced individual who can help out.