As Benjamin Franklin put it: Nothing can be said to be certain, except death and taxes. We can’t help you with the death bit, but we at HW Fisher should be able to help with taxes. As a professional musician in the UK, here’s some of what you need to know, from Musician Specialist Accountant Andy Levett.

1Keeping records As soon as you start getting money in – that means now – you must keep records of all the income you’ve received. If you’ve given out an invoice or receipt or been given a remittance advice, file it.

We recommend bookkeeping electronically, whether it’s on a spreadsheet or using online accounting software, like Xero or Freeagent.

2What’s income? Income is all the money you receive in the course of your work: live performance fees, session payments, royalties, tutor fees, merchandising, even busking tips!

It’s still income if you’re paid in cash, and it’s still income if it’s reimbursing expenses that you’ve paid out.

3Expenses The good news is most of what you spend in the course of your work can be deducted from the amount you will be taxed on – travel, phone bills, teaching, instrument insurance, commission, strings and reeds, even the use of your home as an office or studio.

The bad news is that this only works if you keep detailed and accurate records of each item you’ve spent. You need to start doing this now, if you haven’t already.

 

4Registration The chances are that you will count as self-employed (but see item 7 below). This means that you will have to register with the UK tax authority, which is called “HM Revenue & Customs” (HMRC for short).

For obscure historical reasons, the UK tax year runs from April 6th to the following April 5th. You must register with HMRC by six months after the end of the tax year after you receive your first income, so if you get paid in May 2016, you have until October 2018 to register. But don’t be daft: do it sooner!

You will need a National Insurance Number – most UK natives get one when they’re children, but if you’re from abroad, you will need to apply to a Jobcentre. One reference isn’t enough for HMRC, though: they will also allocate you a “Unique Taxpayer Reference” or UTR.

5Capital allowances If you buy equipment with an enduring value to your business, such as a musical instrument or recording gear, this is considered a “capital purchase” (as opposed to an expense) and goes by different rules. Currently, you can claim 100% of the cost of items purchased during the tax year (up to a total of £200,000).

If you’re using something you already owned, you can claim a yearly allowance of 18% of its cost or value, on a “reducing balance” basis (ask your accountant what this means).

6VAT We hope that your career goes really well and that your yearly income will eventually get into six figures.

Beware, however: when your UK income hits the hallowed figure of the Value Added Tax threshold (currently £83,000), you will need to register for VAT and start adding 20% to your invoices. You’ll pay this to HMRC every three months, after deducting the VAT you’ve paid out on your costs – that’s the “Value Added” part.

You’ll almost certainly want some professional accounting help at this point, if only at the beginning.

7Self-employed or employed? As a performing or teaching musician, you’re probably self-employed: you’re being taxed like anyone else who runs a small business.

However, if an employer has significant control over how much work you do and when you do it, then you’re employed and your income from them is taxed completely differently on a scheme called PAYE (Pay As You Earn). (For example, if you are teaching at a school, you’re probably an employee of the school). The exact rules get quite complex as to whether income is or isn’t considered as being from employment.

You can have more than one employer, and you can be both employed and self-employed at the same time.

8National insurance If you’re purely self-employed, you pay two types of National Insurance Contributions (NIC): Class 2 is a flat weekly rate payable via the tax return each January, while class 4 is due when profits exceed about £8k.

9Income from outside the UK You’re likely to have engagements abroad and be paid there. Every country has its own tax rules, and in many places, your fees will be paid minus “withholding tax”.

In most cases, this is available as a credit against your UK tax liability on the same income, but it is advisable to check the position well in advance of the engagement and take any necessary steps to avoid complications.

10Don’t forget your tax return! You will need to file a yearly tax return, and to avoid penalties, you’ll need to remember to do it on time. If you don’t use an accountant to do this, you’ll need some software, either HMRC’s own free offering, or one of the commercial offerings.

 

Tax can be a minefield but as long as you don’t ignore your obligations, with a little care and preparation, problems and anxiety can be avoided. Professional assistance from an accountant can be invaluable and allow you to concentrate on what you do best.

To download the full article, please click here.

If you would like to discuss your affairs with a musician specialist accountant, please either email the team at HW Fisher on info@hwfisher.co.uk to set up a free no obligation meeting with one of our team or call Andy Levett on +44 (0)20 7874 7872.

 

This article was sponsored by HW Fisher.