Alistair Bambridge of Bambridge Accountants guides the music industry through tax return season...
Nothing is less rock‘n’roll than tax. End of. But January is that dreaded time of year when everyone who’s self-employed or works freelance has to complete a tax self-assessment form. The vast majority (94%) of musicians and DJs work freelance for all or part of their income, so for them the grim ritual will be all too familiar.
Most will have multiple sources of income - a gig here, music teaching there - which means their tax returns can be fiddlier than most. That’s the bad news. But the good news is they can also reduce their tax bill substantially, or even get refund, by offsetting their expenses.
In other words, money you spent as part of your work - everything from digital downloads to vinyl, instruments, travel costs, costumes, hair and make-up - can bring your tax bill down.
Time is getting tight
The deadline for submitting your online tax return is the 31st January, so if you haven’t started yet, you need to get a move on. Filing a return after the deadline will incur an instant £100 penalty - this happened to 840,000 people last year. Further fines and interest are charged the longer you delay. The taxman has revealed that the excuses given by people filing late include “seeing aliens” and “suffering vertigo”.
However imaginative they are, excuses almost never cut it. So here’s a quick survival guide to help you get your tax return done on time and claim the expenses to which you’re entitled.
Some basic rules
You must complete your tax return by midnight on 31 January. It’s likely to take several hours to do, so don’t leave it until the last day – this is a recipe for missing the deadline, or having to rush things and making a mistake.
Before you start, track down the information you’ll need.
Payslips from any employment you have had, including your P60.
Details of any freelance income you received from concerts, sessions or private lessons.
Income from a property you let.
Pension contributions or any pension you receive.
Capital gains or losses, eg from selling property.
It’s also useful to have to hand details of:
Any savings and investments.
Income from life insurance policies.
Any donations you made to charity.
If you haven’t filed a self-assessment tax return online before, you must sign up to use HMRC online services. Make sure you have your self-assessment reference number to hand before you start. It’s a 10-digit number called a unique taxpayer reference (UTR). If you’ve used the self-assessment service before, you won’t need to activate your account again. But it’s worth checking well before the deadline that you know your user ID and password. If you’ve lost them, you can get a new one – but don’t leave looking for them until deadline day!
Getting down to business
Start by giving details of any work you did as an employee – your payslips and P60 will show your gross earnings and how much tax you paid. Because you have already have been taxed on this income through PAYE, you won’t be taxed on it again – but you must still declare it. If you don’t have a P60, your March 2017 payslip will give you much of what you need, as it should show your salary in that job for the tax year to that point, along with how much tax was withheld from your earnings.
Next you’ll need to declare any work you did for which you were paid as a freelancer, such as one-off gigs, sessions or private music lessons. If you have payslips or invoices for this work, great. If you don’t, your bank statements will give you much of the same information – though you may need to do some detective work if you were paid by cheque. Your bank statements will also contain other things you may need to include, such as how much you paid in pension contributions, charitable donations and so on.
Even if these are small amounts, make sure you include them as doing so can bring down your tax liability. Don’t forget to declare any other income you might have received – such as rent on a property you own or interest from savings and investments. Your bank statements will often show how much interest you received over the preceding year, but if you have mislaid them, a simple telephone call or check of your online statements should give you the relevant information.
Make sure you claim all the tax relief you are entitled to. This could include many of the expenses you incurred while working freelance. It can range from the obvious – travel expenses and the cost of buying or servicing musical instruments and staging – to the less so, such as costumes, hair and make-up. It can also include the cost of research you carry out for your work – such as buying sheet music, streaming or downloading music – as well as any training you undertake to improve your professional skills, and your membership dues if you’re in the Musicians’ Union.
Ideally you’ll have receipts for all these things, so you’ll be able to put in exact figures. But if you can’t find exact figures you can put in estimates. Ensure the figures you give are as accurate as possible and note on the form that they are ‘provisional’. HMRC will deduct these costs from your tax liability. This will reduce your tax bill, and if you had a job for which you paid tax already, may even earn you a tax rebate!
This perk is particularly valuable for those starting out on a musical career, who tend to have a salaried job – either full or part-time – in addition to their freelance earnings from music. If your allowable expenses exceed your freelance earnings, you could receive a cheque from the taxman!
Working out which expenses you can claim for can be tricky, so you should consider taking expert advice from a chartered accountant. Their help could save you much more in tax than the cost of their fee.
Allowable expenses for musicians and DJs:
Digital downloads, vinyl, sheet music etc if for work or research.
Equipment (instruments, light, sound or DJ equipment).
Music editing or composing software.
iPads, laptops, headphones etc if used purely for work
Classes (eg singing) if they refresh skills - any new skills classes are excluded.
Travel to and from gigs or rehearsals
Accommodation if staying overnight / touring
Website and other marketing expenses
Attending other shows if for research
Costumes, hairdressing, make up or wigs - not for day-to-day use, but for performances.
Promotional materials (less than £50)
Mobile phone - % you use for business
Use of home if you work from home
Commissions to agents and managers
Subscriptions (eg Music Week)
Fees for drawing up contracts
For more general queries, you can call HMRC’s self-assessment helpline on 0300 200 3310. Make sure you have your National Insurance number and UTR to hand when you phone, and be prepared to wait – the phone lines get very busy at this time of year!