Self Employed Musician? Here is our tax advice guide just for you. Whether you are starting out or just want to understand more about allowable expenses, here are some useful tips specifically for self employed musician.
Register with HMRC as a Self Employed Musician
Whether you are part of a band, play an instrument or sing, going self employed is the easiest way to kick start your career as a self employed musician.
First of all, you must let HMRC know that you are self employed and you can do that online here. Once this process is completed, HMRC will send you a UTR number (Unique Tax Payers Reference). Keep this safe as you will need this code to file your Self Assessment Tax Return.
As you are self employed, you are required to pay tax under Self Assessment. This means you need to submit a personal Tax Return by 31 January each year. It should detail your trading income, the income tax and Class 2 & Class 4 National Insurance. It should also include details for making a payment for the tax and NI due. Your tax return submitted by 31 January covers the previous tax year. For example: your tax return due on 31 January 2018 details your trading income earned between 6 April 2016 to 5 April 2017.
Watch out, you are also required to make a payment on account to HMRC by 31 July each year too. This is normally 50% of your previous years tax bill, so make sure you budget for this additional payment too.
Your trading income, somewhat deceivingly, actually means your trading profits (all your income less all your allowable business expenses). Generally speaking, business expenses are only tax allowable if they are ‘wholly, necessarily and exclusively’ incurred in the performance of your business. All expenses must be supported by a receipt. Therefore, make sure you keep hold of all your paper or emailed receipts. But, it is really important to be aware of which expenses are allowable because they will reduce your tax bill and incorrect claims can result in penalties.
Allowable Start Up Expenses for Self Employed Musician
Starting any business usually involves some element of cost. So, it is worth understanding whether these expenses will attract tax relief before you start spending. Here is a list of typically allowable start up expenses relevant if you are a self employed musician:
You need more than just your instrument or music kit. For instance, microphones or cases for your equipment as you travel around to gigs. These are fully allowable and some may attract Annual Investment Allowance. And, this is another way of making tax savings. So, keep all the receipts of your equipment so you can discuss deductions with your accountant.
Computer & Printer
You may need a computer & printer to records music, manage your bookings, make orders, manage your social media or print out leaflets/brochures. Your computer and printer may be tax allowable either in full or as a proportion of its total value. Consequently, make a note and keep the receipt to discuss at tax time.
Having a website is so important. Primarily, it gives you the chance to detail your services, prices, showcase your previous work and let people get a feel for your experience and personality. If you are considering investing in a website, then it is worth noting that the website, domain and hosting again are all allowable expenses.
Allowable Ongoing Expenses for Self Employed Musicians
Once you have begun to find work, you will being to incur expenses on an ongoing basis as you run your business. Here are some of the ongoing expenses you which you should look out for as a self employed musician. It’s important to keep details of as they are generally tax allowable and reduce your tax bill:
Equipment Maintenance or Replacement
The cost of your instrument maintenance or repairs are all allowable expenses. If you decide you need to replace a piece of equipment, either as the old one is worn out or you decide it is time for an upgrade, then just keep all your receipts. Then, you can chat to your accountant about making the right claim against your tax bill at tax time.
Phone and Internet
The cost of a business phone (mobile and/or landline) and your internet is an allowable expense. However, if there is personal use then only a proportion of the contract costs can be claimed.
If you have a ‘uniform’ with your logo that you wear while you work, then you should be able to claim for this cost. Normal clothing is not allowed and neither is the cost of washing your ‘uniform’ at home.
When you travel around to different venues you will incur the cost of travel. Keep hold of your receipts for trains, tubes or taxis as they should all be allowable expenses and help reduce your tax bill.
If you need to use your car to travel to performances or venues, you should note down the mileage. This is because it falls under the category of travel. Record you miles to and from your destination since you can claim 45p for the first 10,000 miles of driving and 25p thereafter.
Your instruments and music equipment are expensive. Therefore, you will take out some form of insurance to cover loss, theft or damage. Again, you will be able to claim this cost as an allowable expense.
Use of Home
If you choose to base your business at home, then there are rules that will allow you to claim an amount for the running costs of doing so from your home. For example, as self employed musicians, it may be as a portion of your household bills such as gas, water, electricity or rent. Make sure you have an idea of your household running costs to discuss with your accountant at tax return time. They will help you work out how much you can claim against your taxable income.
Agents Fees or Commissions
Keep all paperwork detailing fees and commissions deducted from your earnings. This is because they could add up to a substantial deduction and reduce your tax liability as these fees are all tax allowable.
You may opt to take courses to improve your skills and techniques. These will possibly be tax allowable so keep your receipts ready for when you need to submit your tax return to discuss with your accountant. If you need to travel to your course or stay overnight as part of the training, these costs are also tax deductible. Plus, the cost of a basic meal for lunch/dinner. Take the time to collate your receipts. Plus, note down mileage so you can discuss your claim against your taxable income with your accountant.
Any marketing you do (online or offline), paid ads or anyone you pay to help you with your marketing is also fully allowable. As a result, make sure you download or ask your marketing assistant to send you an invoice before you pay them.
Accounting & Bookkeeping
Keeping accurate business records will help to avoid missing any entitlements or tax relief that you may be eligible for. Using a cloud based accounting software such as Xero, Quickbooks or Sage will make life easier. So, if you do choose to sign up the cost of the monthly subscription is fully tax allowable. Then, if you choose to use an accountant to complete your self assessment tax return again their fees will be an allowable expense. Keeping accurate records will definitely help keep their fees down too. Additionally, it will give them all the information they need to make sure you receive all the deductions and reliefs to reduce your tax liability.
It is advisable to open a business bank account and keep your business and personal expenditure separate. The bank charges you pay on your business bank account is an allowable expense.