Self-employed musicians are overpaying tax
A recent survey of musicians showed that over 90% are self-employed. Of these, nearly a quarter (24%) said they are not confident completing their tax returns. Although this is a small and specialist market, much of what I’m about to write about musicians also applies to many others areas of work.
Part of the problem is that, as another survey revealed, only about a third of self-employed musicians and artists use an accountant. Now, I know you’ll say, ‘well, you’re an accountant and you would say that, wouldn’t you?’, but at this point I need to state that around 50% of musicians and artists pay too much tax. That’s money they might have otherwise have saved and it far outweighs the cost of using an accountant in most cases. Now I do know that being a musician, whilst immensely satisfying, doesn’t mean you get paid Taylor Swift levels of cash. But how do you ensure you pay only the tax that’s owed…?
The principal reason why people overpay taxes is because they don’t claim all the available deductions for essential expenses. To give you just a few examples, these include music subscriptions, studio time, travel to and from shows, using your home as an office, and equipment costs and maintenance. Then, as the Musicians’ Union notes, there are grey areas which require negotiation with HMRC (preferably by someone who knows how to do this). A good example of this would be stage clothes. These could fall under the notion of ‘duality’ by serving more than one function during a performance. But if you don’t understand ‘duality’ then you’re unlikely even to try to make the claim.
Other examples found by the various musicians’ research studies include the 90% who incurred expenses by paying for studio time: something 40% of them subsequently fail to record as a business expense. Moreover, to my surprise, some 80% spend money on their instruments and equipment – both buying them and maintaining them (guitar strings, drum heads and sticks, etc.), yet nearly one third (30%) actually did not record this most basic of costs.
The Musicians Union gives the following, not exhaustive, list of things to keep an eye on: dividend vouchers; P45s/P60s from your employers; receipts for donations made using the Gift Aid scheme; bank interest certificates; notifications for any state aid received; and paperwork for assets that you have sold.
Then there is the issue of other band members. Who pays for what can easily be forgotten. Although they probably don’t think of themselves as your ‘business partners,’ that, in effect, if what they are – and therefore it’s vital for all of you to agree/find out which costs and expenses each person will be responsible for paying.
Further research suggests that 9% of musicians never check their financial statements for their earnings from music, while 26% only do so annually. Quite a few teach to supplement their income and often they are paid in cash. Consequently, if you’re a music teacher and/or a hard-gigging musician, it can be difficult to keep your admin/paperwork up-to-date when you are travelling all over the place, being decanted from the van at 2.00 am and then teaching budding heavy metal stars to play the riff to ‘Smoke on the Water’ at noon the same day. It really will pay you if you review your financial records every week, or at least every month, so you stay on top of receipts and invoices and ensure nothing is lost. HMRC likes hard evidence… As with any self-employed person, putting in time on these basics will make everything very much easier when you come to file your tax assessment.
One of the companies organising these research studies is called Pirate and they have created a guide to very useful tax-deductible expenses for music artists. Their artist and community manager, Emmavie Mbongo, said, ‘Almost any cost that relates to your role as a ‘business’ should be scrutinised for potential tax relief. This means you’ll need to consult with your accountant (if you have one) about which expenses qualify, or meticulously review your outgoings yourself if you’re managing your tax return independently…
Accounting and taxes aren’t what most people dream of when they imagine their music career taking off. In fact, managing your own finances is one of the most intimidating parts of monetising your talents, but it becomes necessary very early on.’
Finally, it’s worth stressing that, as with all financial/accountancy matters, there’s not one piece of advice that applies equally to everyone. If you really want to make sure you’re not paying too much tax, whether you are a musician, a mechanical engineer or a magician, it really does pay to speak to a tax expert for bespoke advice. Fortunately, as bona fide tax specialists, M&S Accountancy and Taxation knows someone who can help!
Callum McKinnon, M&S Accountancy and Taxation
