Tax is one of the less glamorous sides of the rock ‘n’ roll lifestyle and there is no escaping it. But, managing tax as a musician effectively can help you get more from your money.
In this guide our Tax Partner (and musician himself), Neill Staff, guides you through the whole tax process – what you need to be doing, what you can be saving, and some general advice on keeping compliant, letting you get on with what you do best – creating music.
Step 1 | Getting Started
Musicians often fall into one of three categories – music is a hobby and done for love and not money, you earn money through gigging but also have a salaried job, or you are a full-time musician.
Generally, if you fall into the latter categories, you should set yourself up as a sole trader, register for self-assessment and file a tax return every year.
Note, even if you are part of a band, you all need to register for self-assessment and file your taxes separately.
Step 2 | Paying Tax
Once you are set up, what do you need to pay tax on?
You will have to pay tax on any income you earn above the annual allowance threshold (£11,850 for 2018/19). This includes:
- Gigs and concert earnings
- Tips and bonuses
- Money earned from busking
- Sales of CDs or downloads
It is your responsibility to ensure you pay and report tax on these earnings to HMRC. To do this we advise you to set up a bookkeeping system – consider online platforms, such as Xero – as these will allow you to keep track of your income and expenses daily, ensuring you never forget any payments and can keep track of how much tax you are liable for.
Step 3 | Saving Tax
Tax is not all bad news, as a sole trader you are eligible to claim some of your costs back as expenses.
Just to note, expenses are classed as something that is necessary for you to spend in order to be a musician. Some examples of what you can claim:
- Marketing Costs – Posters, brochures
- Stage Clothes – Any outfits required for performing. Although, these must be for performance only and can’t be the type of clothes worn day-to-day
- Accountancy Fees – these are allowable costs
- Travel Expenses – Train tickets, petrol costs (be realistic, HMRC will not let you claim for limos and first-class travel)
- Instruments – Guitars, keyboards
- Instrument Repairs – Fixing equipment if it becomes damaged and stops you from performing
- Production Equipment – Laptops, editing software
- Instrument Insurance – Protect your livelihood
- Recording Fees – Studio rental, rehearsal room hire
- Agent Fees – Fees paid to agents for gigs
- Gig Equipment – Sound equipment, lighting, microphones
- Music – Backing tracks, sheet music
- Accommodation – Hotels during overnight gig trips (but be realistic, HMRC will not be paying for you to stay at the Ritz)
Just remember, claiming expenses does not mean you recoup the full cost, they just allow you to reduce the amount of tax you pay on your earnings – saving you money.
To make claims, ensure you keep a record of all your receipts. There are loads of apps now that allow you to do this easily, such as Receipt Bank, which lets you take pictures of your receipts and can automatically upload them to your bookkeeping software, allowing you to keep on top of your outgoings and ensure you don’t miss out on any claims.
Step 4 | Your Questions
- Should we consider making our band a limited company?
- If you are a higher rate taxpayer, this may be beneficial, but there are additional costs to consider such as accounts and Companies House. Therefore, it is always best to seek professional advice first. Generally speaking, the company route is only good if you are either seriously into higher rates (say £80K plus) or you can leave the profits in the company and not have to pay tax on wages and dividends.
- What are the rules regarding working from home?
- If you work from home you can claim a tax deduction to cover part of your home running costs. HMRC allow (a modest) £4/week without asking for any evidence. You may be able to claim more, depending on the proportion of your home used for work purposes.
If you have any questions regarding ‘managing tax as a musician’ and would like to discuss further what you can and cannot claim, contact firstname.lastname@example.org.