Tax Question

Barnezy

If playing guitar is your hobby, but you get paid to do a gig, can you then claim your gear back on your tax return? 

Had a guy recently buy a guitar from me and insisted I wrote out a receipt so he could claim it against his tax bill. 

Am I missing out here? 40% of everything I buy, sound good to me! 

phil_b

it could be he is VAT registered. As with most tax related things nothing is free. If you are vat registered you have to charge your customers VAT but anything you purchase for the company is VAT free. below an income threshold VAT registration is optional above the threshold it is compulsory

Barnezy

It wouldn't be VAT on a used guitar. He will be claiming as a cost/expense against his income on his tax return. 

poopot

As long as you invoiced for the gig and paid tax and stamp on the income... don’t see why not!...

Barnezy

Great, my gear fund just grew 40%

prowla

If you run it as a company, you do a P&L and you are taxed on the profits (after expenses, pay, purchases).

If you are VAT registered then you deduct the VAT on purchases from the VAT due; however, you do have to charge VAT on your invoices (which must show your VAT reg.).

With equipment it is typical to depreciate it over a period, maybe at 1/3rd a year over 3 years for a computer; that's easy for a computer as the value predictably drops with age, but it may be different with a guitar, it might be different as the value may not go down.

It is a bit of a chore running a business...

TheBigDipper

When you buy a guitar as a personal item, it belongs to you and you can do what you want with it.

When you buy a guitar as a business item, it belongs to your business as an asset and not to you personally. So, you either buy it through a limited company which you control, or you are registered with HMRC as a sole trader and that purchase shows as a business expense (buying tools of the trade). It gets listed on your asset register. The value of that asset is reduced over time in your books.

When you sell a guitar owned by your business, the income is accounted for as income to the business, not you. So - if you're a sole trader - you might pay tax on the income from the sale - depending on what else happens that tax year. If your limited company bought it, it will be a sale in your accounts and your business might pay tax if it makes a profit.

So, if you earn £1k/year from gigging and spend £3k on a guitar, you've "lost" £2k in that tax year and therefore don't have any tax bill for the year to claim it against. You can carry that loss into the next year, but you'll still need to be earning enough to actually make an operating profit before there's any tax owed that you can offset with the guitar purchase. But it isn't your guitar - it belongs to the business. 

Neil

To claim a business expense like a guitar you'd obviously have to list all your income from gigging wouldn't you? 

rlw

He will only be able to claim a portion of the cost of the guitar against tax at best. One gig might be worth 5% of the cost, maybe, and 95% of the cost will be for personal use and not allowable.   Unless he is a professional musician, which he isn't.

TTony

phil_b said:

it could be he is VAT registered. 

He's not paid VAT on the purchase, so there's no VAT reclaimable.  The threshold for VAT registration is c£80k pa - ie that's what the business has to earn before it's liable to charge (and therefore be able to reclaim) VAT.

It's unlikely to be a VAT claim situation.

Neil said:

To claim a business expense like a guitar you'd obviously have to list all your income from gigging wouldn't you? 

You would.

And, you'd have to be able to demonstrate that you were running a successful - viable - business.  IE that your earnings are generally sufficient to offset the costs of the business.


He might well be running a business - though not a music-related business - and gathers receipts from any transaction that he can to set off against the income from that business.  If the receipt states "guitar" and he's running a plumbing business, then he might have a hard time justifying that receipt as a cost of the business.  However, if the receipt just says "goods" (or some other general description), then he'd probably get away with it, provided that he doesn't do it too often, and the general receipts are only a small part of his overall costs.

Sassafras

He's only gonna flip it tomorrow anyway.

rlw

TTony said:

phil_b said:

it could be he is VAT registered. 

He's not paid VAT on the purchase, so there's no VAT reclaimable.  The threshold for VAT registration is c£80k pa - ie that's what the business has to earn before it's liable to charge (and therefore be able to reclaim) VAT.

It's unlikely to be a VAT claim situation.

Voluntary registration of course....

hotpickups

Yes you can. If we get a well paid gig one of the band signs the receipt for it and then invoices the other band members individually for their share so that they are covered for only their part of tax to pay in their self assessment. Otherwise the person who signed for it has no other way of proving that he only took a share of it and would have to pay all the tax owed in their self assessment. 

So I collect all my receipts for guitar related purchases to offset my band earnings. I’ve always paid out more than I’ve ever earned from gigs etc. That’s why it’s a hobby. Hobbies rarely make money for most of us. I don’t even want to think about the ratio of my spending to my paid gigs etc  

Does that make sense ?

Epsilon

Based on some of the responses above I strongly advise against taking tax advice on a guitar forum.

hotpickups

Epsilon said:

Based on some of the responses above I strongly advise against taking tax advise on a guitar forum.

Sorry lol 

Its never good news when it concerns tax 

Blueingreen

In theory you could offset losses made from your trade or profession of guitarist against other income.

But you need to be conducting a business with  a view to making a profit.  If you normally spend more on equipment than you earn from playing, you aren't doing that, and HMRC would deny the deduction against other income on the grounds that it's a hobby not a business.

That's the negative.  The positive? HMRC twice chased people playing in bands with me on fairly modest levels of playing income (couple of grand a year after direct expenses).  I got them to compile a list of equipment they'd bought.  I told HMRC "here's a list of capital expenditure.  If you remain of the view that my friend is conducting a business with a view to making a proft, please confirm that.  He will be happy to claim capital allowances and offset the resulting losses against other income.  Alternatively, please confirm that you view his playing activity as a hobby with no tax implications".  In both cases HMRC agreed there was a hobby and lost interest.

viz

Barnezy said:

Great, my gear fund just grew 40%

By 66.6% isn’t it?

RonnieHotdogs

Are you declaring the income?
If so it's reasonable to offset relevant costs, but that's not the cost of equipment.
You have to appreciate that over their useful life, then deduct that , but not all of it, as it is not used for gigging 260 days a year I assume.

Eg guitar costs £1k , useful gigging life of 5 years, £200 a year, maybe charge £100 of that as a cost of sale. 

Rule with Her Maj is..... claim ,be reasonable, don't take the piss, and you'll be ok.

Claim travel, reasonable subsistence, special clothing, amp use and accessories. 

Whitecat

You may not have to depreciate it - there is a Capital Allowance relief scheme that basically lets you offset 100% of the cost of some things against revenue in one tax year. You would probably have to be doing it full-time for that to be allowable. Something to ask your accountant about - a wis for he who suggested that taking tax advice on a guitar forum isn’t the best move.

RonnieHotdogs

I'm an Accountant 

Whitecat

RonnieHotdogs said:

I'm an Accountant 

Right, so what's the deal with the Capital Allowance scheme then?