Declaring music earnings - any pitfalls to be aware of?

rsvmark

@Trude ;

Do you do a self assessment each year? As a 40% pax payer I would guess you might. Cover it on there and there will be no need to set up a separate music co. 

New guidance for tax year 17/18 is that 2 new tax allowances (each at £1000) are available for trading and property income and will also apply to certain misc income from providing goods or services. Where the allowances cover all income before expenses then you no longer need to declare or pay tax on it. Those with higher income can choose when calculating taxable profits of deducting the allowance from their receipts instead of the actual allowance expenses.

i am not clear if this ability provides an overall allowance of £2000 or just £1000 for the 'trading' bit.

my advice is to contact HMRC, get a definitive guide in writing and then use this on your self assessment. 

Phil_aka_Pip

and join the MU (if you haven't already). MU subs are tax deductible and their business advice is invaluable

rsvmark

And insurance costs, (instruments and PLI)
And any PAT testing

hywelg

Whitecat said

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.

I don't think that's right. Capital assets still have to be claimed as an allowance and depreciated year on year, and a guitar would certainly be classed as capital  item since it is not a short life .  Tools of the trade on the other hand can still be classed as capital depending on their expected life. So a router would be a capital item but the cutters would be revenue. Computer equipments and software,  however is classed as short life and can mostly be claimed as revenue expenditure. 

This is why you need an accountant. They will save you money. Ask around, you don't need a corporate accountant,  mine charges me very little, works from home and also does the HMRC filing for me. They will also be able to advise on the claiming of losses against your PAYE tax already paid.

Trude

rsvmark said:

@Trude ;

Do you do a self assessment each year? As a 40% pax payer I would guess you might. Cover it on there and there will be no need to set up a separate music co. 

Yeah - I do, but only because of the recent changes that apply to child benefit (there are two mini-Trudes).  If you earn over a certain threshold and are getting CB you have to do a tax return so they can grab some of it back.  As a result I've maxed out my pension contributions etc to bring down my taxable earnings as much as I can.  Ironically I think that adding my music earnings to that will probably swallow up what remaining CB we would have been entitled to.  Bloody kids.

Whitecat

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Trude

rsvmark said:

New guidance for tax year 17/18 is that 2 new tax allowances (each at £1000) are available for trading and property income and will also apply to certain misc income from providing goods or services. Where the allowances cover all income before expenses then you no longer need to declare or pay tax on it. Those with higher income can choose when calculating taxable profits of deducting the allowance from their receipts instead of the actual allowance expenses.

i am not clear if this ability provides an overall allowance of £2000 or just £1000 for the 'trading' bit.

my advice is to contact HMRC, get a definitive guide in writing and then use this on your self assessment. 

That's good to know - thanks!  If this means you can make £1000 profit from music without paying tax then that's great news.  I'll probably still declare it in any case just to make sure it's all down in black and white.

Trude

Phil_aka_Pip said:

and join the MU (if you haven't already). MU subs are tax deductible and their business advice is invaluable

Yep - have been a member for years.

Whitecat

hywelg said:

Whitecat said

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.

I don't think that's right. Capital assets still have to be claimed as an allowance and depreciated year on year, and a guitar would certainly be classed as capital  item since it is not a short life .  Tools of the trade on the other hand can still be classed as capital depending on their expected life. So a router would be a capital item but the cutters would be revenue. Computer equipments and software,  however is classed as short life and can mostly be claimed as revenue expenditure. 

This is why you need an accountant. They will save you money. Ask around, you don't need a corporate accountant,  mine charges me very little, works from home and also does the HMRC filing for me. They will also be able to advise on the claiming of losses against your PAYE tax already paid.

https://www.gov.uk/capital-allowances/annual-investment-allowance

See point number 3. You can write off up to £500k as “full value” (with some exceptions.)

You can still choose to depreciate if you want - there are valid reasons for doing so I’m sure, but probably not very many for a micro-business. 

Got my terminology a little mixed up but the point is there - depreciation is not required on stuff bought under AIA rules. 

Let’s face it - some new guitars are gonna instantly devalue by nearly half anyway. Add wear and tear and that can go down substantially more within just a year or two if you are a gigger. 

Trude

Whitecat said:

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.

Well, that's excellent news!  This being the case I can probably swallow up most of my remaining profits from 2016-17.  Will also take some of the sting out of selling an item for less than I paid, if/when that income comes back eventually.

I can feel a last-minute spending spree coming on in the next couple of weeks....

Legionreturns

@Trude ...I'd think that kids are a hazard of being a guitarist and therefore all child related expenses should be deductible. 

After all, guitarists get laid a lot. 

Apparently.

Trude

Legionreturns said:

@Trude ...I'd think that kids are a hazard of being a guitarist and therefore all child related expenses should be deductible. 

After all, guitarists get laid a lot. 

Apparently.

That's a good point, though my wife's a self-employed violinist, so we'd need to claim for one kid each I guess.  Bagsy the girl - she's gonna cost me more in the long run, I reckon....

rsvmark

Trude said:

rsvmark said:

New guidance for tax year 17/18 is that 2 new tax allowances (each at £1000) are available for trading and property income and will also apply to certain misc income from providing goods or services. Where the allowances cover all income before expenses then you no longer need to declare or pay tax on it. Those with higher income can choose when calculating taxable profits of deducting the allowance from their receipts instead of the actual allowance expenses.

i am not clear if this ability provides an overall allowance of £2000 or just £1000 for the 'trading' bit.

my advice is to contact HMRC, get a definitive guide in writing and then use this on your self assessment. 

That's good to know - thanks!  If this means you can make £1000 profit from music without paying tax then that's great news.  I'll probably still declare it in any case just to make sure it's all down in black and white

i wouldn't - I would call HMRC and check how they want you to it. It may be that they don't want you to put it down if it's de minimus