Tax returns: A music-industry survival guide
It’s up there with quitting smoking and joining a gym: at the start of January every year, millions of Britons pledge to avoid leaving their tax return until the last minute.
A large proportion of music-industry professionals are self-employed, so for many of you this grim January ritual will be all too familiar.
But with the 31 January deadline approaching fast, if you still haven’t started your self-assessment tax return you’ll need to get your skates on.
If you file your return after the deadline you will face an instant £100 penalty, with further fines and interest charges the longer you delay.
While no-one enjoys tax returns – even accountants – they are a legal requirement, and the means by which HMRC works out how much tax you should pay on your income.
Those involved in playing or putting on live music tend to have lots of separate bits of income which they need to record on their annual tax return, so their returns can be more fiddly than most.
But they can also reduce their tax bill substantially – or even get a tax refund – by offsetting their expenses. These expenses can include everything from musical instruments to travel costs, costumes, hair and make-up.
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.
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. This includes:
- 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, from selling property, etc.
Those in the live music business tend to have lots of separate bits of income which they need to record on their annual tax return, so their returns can be more fiddly than most
It’s also useful to have to hand details of:
- Any savings and investments
- Income from life insurance policies
- Income from pensions, annuities or other benefits
- 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 2016 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.
Expenses 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
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 – deemed ‘allowable expenses’ 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.
For more general queries, you can call HMRC’s self-assessment helpline on 0300 200 3310. Make sure you have your National Insurance number UTR to hand when you phone, and be prepared to wait – the phone lines get very busy at this time of year!
Alistair Bambridge is a partner at Bambridge Accountants.