It’s easy to be a tax-efficient musician if you’re organised and keep things as simple & streamlined as possible. Sounds too good to be true?
As a piano teacher for beginners and also a Chartered Accountant, I understand how difficult it can be to run, promote and perform in your day to day business as a musician/music teacher, without the added headache of having to keep books and records AND submit complete & correct tax records.
Here are some really basic but practical tips on how to be a tax-efficient musician.
Tip 1 – Keep clear, easy-to-access records which you can find fairly quickly. If you’re still paper all the way, get a good quality folder with about 10 dividers and as many clear plastic wallets. Have sections for invoices/summaries, collect receipts in wallets and keep all HMRC tax records in one place. It’ll make things much easier for when you come to log in and do your tax return (or hand it all over to your accountant). Keep your system simple and sections clearly defined and you’re more likely to use it regularly.
Apps like expensify are great for recording receipts, tracking time/mileage and for creating reports on the go. Providing you record all items this way, you should in theory have all your income & expenditure in a couple of taps.
Tip 2 – Register yourself with HM Revenue & Customs at the earliest opportunity
The government is more than a little cash-strapped and has clamped down heavily on tax avoidance, non-compliance and any other behaviour it deems not up to scratch. If you’re employed, receive payslips from your employer that show tax is deducted at source (such as a music teacher employed by a school) and have no other income, you don’t need to register with HMRC. However, if you’re self employed (teach at home, have no employment contract etc), then you’ll need to notify HMRC. There are penalties if you don’t notify and register for self assessment in time – just do it as soon as you can! You can create an online account with HMRC and use this to create and file your tax return, plus view tax payments/balances online. You’ll need to ensure you’re paying the correct rates of income tax and National Insurance by the various deadlines.
Tip 3 – Understand what music expenses attract tax relief
The rule is that you can claim tax relief on music expenses provided they are ‘wholly and exclusively’ relating to your music business. Keep/record all expenses you think fit into this category. Typical expenses you can claim tax relief on include:
- Travel to and from gigs/trade shows, lessons, training – any trip relating to your business (keep your fuel receipts)
- Sheet music
- Piano tuning and repairs
- Assets bought for and used in the business – your piano (under the Annual Investment Allowance you should be able to write off the full cost of your piano, piano equipment and assets introduced into the business, up to a point)
- Insurance, such as public liability
- Website costs
- Advertising, including any graphics designer costs, printing, attendance at events to publicise your trade
- Training received (such as lessons, masterclasses)
- Music publications and subscriptions
There are other items I’ve not listed here but always ask yourself “Is this item wholly and exclusively connected to my piano business?”.
The worst case scenario is an HMRC enquiry. They can be painful to go through and end up costing you in accountants’ fees, plus potential penalties.
Keep your records up to date, claim tax relief on what is correct and keep yourself off HMRC’s radar.
I hope that helps – more tips to follow.