Declaring music earnings - any pitfalls to be aware of?

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TrudeTrude Frets: 914

Hi folks

This year I've decided to start declaring my music earnings (starting with 2016-17).  I've done a few dep gigs for a high-profile function band who have paid me via bank transfer from their company account, so this is likely to make me pop up on HMRC's radar at some point.  I'd like to pre-empt that by going legit.

This will be the first time I've done this, so I'm wondering if there's anything I should be particularly aware of before I complete my tax return?  I have detailed records of all income and expenses, so the numbers are ready to go.  I'm full time employed in my day job and am a 40% taxpayer.  According to my figures, my expenses for music are comfortably above 40% of my additional earnings, so I THINK that means I won't have a bill to pay?

In terms of my gigging life, I play in several different bands, with somewhat fluid lineups, and none of the bands is a legal entity in any way (no band bank accounts or contracts etc - we're just mates who gig at weekends basically).  I'm not officially set up as a sole trader or self-employed - I'm hoping I can simply declare the my gig money as additional earnings on my tax return and then declare the costs too. 

Does this all sound sensible, or am I about to open a huge can of worms?

Oh, I am a MU member too so I could potentially call on their advice if things get tricky.

Some of the gear, some idea

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  • LegionreturnsLegionreturns Frets: 7965
    edited January 2018
    The 40% of your earnings thing isn't right. You deduct your expenditure from your earnings, then pay 40% of the remaining earnings. Ie you pay tax on the "profit". Have you included fuel? Also, if your extra income > I think £6k you have to pay class4 NIC as well. 

    Depending on the total, you can ask them to just adjust your tax code on your primary job to spread your tax bill over the year.

    My Trading Feedback    |    You Bring The Band

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  • RiftAmpsRiftAmps Frets: 3113
    tFB Trader
    Go and see a local accountant and pay for an hour of their time to explain everything to you. They deal with small businesses/self-employed all day long so this won’t be anything unusual for them.

    Going legit is by far the cheaper option than getting caught and receiving a fine. 
    *I no longer offer replacement speaker baffles*
    Rift Amplification
    Handwired Guitar Amplifiers
    Brackley, Northamptonshire
    www.riftamps.co.uk

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  • There are plenty of things you can write down as expenses, eg
    • strings, picks, valves, coax leads and other guitarists' consumables (polish, Nut Sauce &c)
    • CDs, cassettes, music stave paper, indeed any music storage media
    • printer paper, printer ink, USB memory sticks, or any other computer consumables
    • songbooks, scores
    • motor expenses (probably best to claim mileage, although my spreadsheet would also calculate cost of anything as a % of business:personal mileage)
    • MU fees, accountant's fees, advertising (if you do it)
    • rehearsal studio hire, PA&lighting hire (or your contribution towards it)
    • an agreed % of your phone bill, ISP costs, and energy bill for your music room
    • guitar maintenance and amplifier repairs

    ... and you could probably show that while you took some decent money for your work outside of your day job, you spent so much on getting the work that you don't actually owe a great deal of tax on it. You pay tax on profit so make sure your accountant manages to minimise your profit!

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  • TrudeTrude Frets: 914
    Thanks guys - yes, I do record all expenses like the ones you've suggested, including mileage.  I'm sure there may be some that have fallen through the cracks though, so I need to be very rigorous from now on.

    I guess any accountancy fees I may incur in future could also be declared, so @RiftAmps point is a good one.  Maybe I'll see what happens this first year and then set something up in good time for next year's books.

    I've assumed that big instrument purchases are best left off though, especially since there's always a chance that I might sell something on again.  Does that sound sensible?  I'm also not declaring any music gear I sell as income, so I guess that balances out.
    Some of the gear, some idea

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  • DannyPDannyP Frets: 1667
    I'm in pretty much exactly the same situation at the mo - about to go legit - so thanks for this!
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  • DiscoStuDiscoStu Frets: 5372
    Using your own vehicle means you can claim 45p per mile up to 10,000 miles, then it reduces after that. Mileage claims have helped bring my profit below my threshold so I'm not paying tax this year.
    I record mileage using the Tripcatcher app and it syncs with my Xero accountancy software.
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  • LesbianWithAGunLesbianWithAGun Frets: 785
    edited January 2018
    I have a record label in Soho and if I want to sign anybody (even myself) whoever'd have to open up a dedicated band/artist bank account somewhere in that act's name and any expenses really should go through that...
    As far as things I've had done in the current tax year prior to any gigging/recording contracts from me to me, I'm wondering, how do I get my instrument expenses bought out of that so I can be open about what I do and why I do with HMRC and have it a business expense for me and use that to IDK, go shopping and repairing whilst preparing. As far as getting demos cut, I'm networking but probably in all the wrong places seems it seems/seemed even (past tense/no more) to be all talk, but even now that talk is changed, and I'm dedicated to my music.
    I'm not yet earning/making a profit, it's all deductible from  -£0 profit. but in the event I ever do make money out of performing and writing and recording, I would like to go in house/independent and see how far I can take it.

    The thing about my record label, sorry, I'm going to plug the business real quick..
    Is to give profanity a chance.
    To give controversial a chance.
    To get a contract to somebody who I'd have to manage very hard since I'm looking for the ones who like music, but scare others away, who would probably be up to no good if it wasn't for me, but to stop anyone robing anyone and letting talent I could use wasted somehow, someway, I figure look for the next angry whatever, and be a good manager/producer to them, argue, inspire, muscle, whatever it takes that I can do, needs to be done, to get them where they're needed ready for what I need them to do, if they're angry/unruly/disrespectful. - If not and I find a little charm/delight to work with, that's just a bonus; someone who has good music, and a good work ethic, who can sell.
     I'm also looking to give powerful songs a chance like blues and sorrow or even love, so not all controversial, but if someone's in pain and wants to pour it on mic and that pain gets released or whatever, and it sounds good how they deliver it and they're genuinely a tortured artist, I want to manage them and help them, if they sound good/can sell.
    If I feel I can't help an act, I'd try sell their contract on to a bigger/better label so I won't hold any acts back from going further than I can take 'em, I just want to be that foot in the door - if I love it.
    But I do want to invest and boss musicians/work with musicians, for the greater good/the records/music/freedom etc.
    Auto tune... I'm not against it, but I'm not for it, I'd be open to all sorts of crazy new sounds everyone else is doing, but that's the thing, everyone else (in hip hop now) is auto tuned the f' out so, why bother?
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  • ESBlondeESBlonde Frets: 3576
    The only downside to being legit is that once in a while HMRC ask if you know certain charactures who have signed for performance fees etc. There used to be a certain M.Mouse that gigged a lot in the 70s and 80s. These days HMRC have tighened up proceedures and the venue must make reasonable checks on who gets cash or they are liable for the tax themselves.

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  • LesbianWithAGunLesbianWithAGun Frets: 785
    edited January 2018
    I'd have to pay my electricity from this account and it's direct debit, no metre here...
    Just because I live in my music room.

    5 Watt Amp, ? Watt PA Box, and a power pack for an FX and the electric heating in here and wifi for all the streaming backing tracks.
    Hmmm...
    I should re think my life and expenses and what I should/could/ought to be doing, sign myself up, pay me my money, list everything but the food (it seems) as an expense, to put in the red so I can see how much I'd need to make to put it in the black/making a profit on my life trying to be a professional musician.
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  • Capital expenditure is written down at so many percent per year (accountants know all about this) - if you claim for it. If you do, then there are consequences when you sell the gear.

    A thought on "Partnership" rules. maybe it doesn't apply if you're depping most of the time, but if you have a regular gig and the band finds itself with a financial liability, the default legal position is that any gear you use in furtherance of the band's business (your instrument, backline etc) is assumed to be part of the band's assets and you could therefore lose it. Check the MU for more on partnership agreements because it is acceptable to have one that says (for example) "The band owns the van the PA and the light rig, but does not own any instruments FX or backline". But you have to have one that says what you want it to, as the legal default is definitely NOT what you want.
    "Working" software has only unobserved bugs. (Parroty Error: Pieces of Nine! Pieces of Nine!)
    Seriously: If you value it, take/fetch it yourself
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  • RandallFlaggRandallFlagg Frets: 13929
    There are plenty of things you can write down as expenses, eg
    • strings, picks, valves, coax leads and other guitarists' consumables (polish, Nut Sauce &c)
    • CDs, cassettes, music stave paper, indeed any music storage media
    • printer paper, printer ink, USB memory sticks, or any other computer consumables
    • songbooks, scores
    • motor expenses (probably best to claim mileage, although my spreadsheet would also calculate cost of anything as a % of business:personal mileage)
    • MU fees, accountant's fees, advertising (if you do it)
    • rehearsal studio hire, PA&lighting hire (or your contribution towards it)
    • an agreed % of your phone bill, ISP costs, and energy bill for your music room
    • guitar maintenance and amplifier repairs

    ... and you could probably show that while you took some decent money for your work outside of your day job, you spent so much on getting the work that you don't actually owe a great deal of tax on it. You pay tax on profit so make sure your accountant manages to minimise your profit!

    cassettes? is this still 1987?


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  • cassettes? is this still 1987?
    If you use them, claim for them. I did :)
    "Working" software has only unobserved bugs. (Parroty Error: Pieces of Nine! Pieces of Nine!)
    Seriously: If you value it, take/fetch it yourself
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  • Spotify subscription?

    My Trading Feedback    |    You Bring The Band

    Just because you're paranoid, don't mean they're not after you
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  • TrudeTrude Frets: 914

    A thought on "Partnership" rules. maybe it doesn't apply if you're depping most of the time, but if you have a regular gig and the band finds itself with a financial liability, the default legal position is that any gear you use in furtherance of the band's business (your instrument, backline etc) is assumed to be part of the band's assets and you could therefore lose it. Check the MU for more on partnership agreements because it is acceptable to have one that says (for example) "The band owns the van the PA and the light rig, but does not own any instruments FX or backline". But you have to have one that says what you want it to, as the legal default is definitely NOT what you want.
    Hmm - interesting.  Most of my gigs are as a regular member, but in those bands we sometimes dep in someone else if the normal guy can't make it.  It would be a pretty complex picture to unravel every member and every gig that they did (some of the bands also have shared members so it's a bit of a venn diagram situation).

    Would there be a way to declare myself as a freelance so that my tax affairs don't drag anyone else into it?  There's no actual shared equipment in any of the bands - each item is owned by one individual and paid for solely by them.  We don't have a shared van either.
    Some of the gear, some idea

    Trading feedback here
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  • TrudeTrude Frets: 914
    Spotify subscription?
    Yep - that's in my spreadsheet too
    Some of the gear, some idea

    Trading feedback here
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  • TrudeTrude Frets: 914
    Capital expenditure is written down at so many percent per year (accountants know all about this) - if you claim for it. If you do, then there are consequences when you sell the gear.
    Yeah, it sounds like a bad idea to go there.  I'm claiming for things like strings, picks, drumsticks etc that are more like consumables.

    What about things like computers, tablets that will rapidly depreciate over time?  
    Some of the gear, some idea

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  • I don't think I can answer that. An accountant would probably be able to tell you how to justify writing things down with a rapid depreciation; there must be conventions which HMRC would accept as all businesses use computers, which as we all know do depreciate rapidly.
    "Working" software has only unobserved bugs. (Parroty Error: Pieces of Nine! Pieces of Nine!)
    Seriously: If you value it, take/fetch it yourself
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  • NeillNeill Frets: 941
    Don't over complicate this.  You don't have to declare yourself as anything, you just submit the "profit" you make from self employment, which is what this is. 

    The important thing is you must keep written records of income/expenditure and receipts for anything you claim as an allowable expense.  Most of what you purchase will fall under the heading of revenue expenditure, I recall someone at the tax office telling me they tend to regard "tools of the trade" as revenue, not capital, I reckon that would cover guitars..?

    I honestly don't think you need to pay an accountant to answer questions the HMRC helpline can answer.  Some of the stuff on the website can be quite daunting but I have always found the helpline staff very, er, helpful. 

    I've been self employed in various guises over the years, at one time I tried to earn some money as a photographer but my earnings were well below what it cost me in equipment, film etc (pre digital age) and TBH I didn't bother declaring it, just made sure i could prove I hadn't made any money if the taxman came knocking.
      
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  • WhitecatWhitecat Frets: 5378
    Neill said:
     Most of what you purchase will fall under the heading of revenue expenditure, I recall someone at the tax office telling me they tend to regard "tools of the trade" as revenue, not capital, I reckon that would cover guitars..?
    Yes, it should. They changed the rules a few years ago so you no longer have to depreciate things like computers and things you'd use day-to-day. Things like plant machinery and stuff are capital expenditures but there's no a way a guitar, even an expensive one would be (anymore). If/when you sell the guitar, you simply include that in your revenue column on that year's return and pay the appropriate tax on the money generated from said sale.
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  • FretwiredFretwired Frets: 24601
    Trude said:

    Hi folks

    This year I've decided to start declaring my music earnings (starting with 2016-17).  I've done a few dep gigs for a high-profile function band who have paid me via bank transfer from their company account, so this is likely to make me pop up on HMRC's radar at some point.  I'd like to pre-empt that by going legit.

    This will be the first time I've done this, so I'm wondering if there's anything I should be particularly aware of before I complete my tax return?  I have detailed records of all income and expenses, so the numbers are ready to go.  I'm full time employed in my day job and am a 40% taxpayer.  According to my figures, my expenses for music are comfortably above 40% of my additional earnings, so I THINK that means I won't have a bill to pay?

    In terms of my gigging life, I play in several different bands, with somewhat fluid lineups, and none of the bands is a legal entity in any way (no band bank accounts or contracts etc - we're just mates who gig at weekends basically).  I'm not officially set up as a sole trader or self-employed - I'm hoping I can simply declare the my gig money as additional earnings on my tax return and then declare the costs too. 

    Does this all sound sensible, or am I about to open a huge can of worms?

    Oh, I am a MU member too so I could potentially call on their advice if things get tricky.

    Think of setting up a company as you can then put expenses through like a new Les Paul as well as strings, fuel, instrument insurance and so forth....

    Remember, it's easier to criticise than create!
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