Music and Taxes: How to Manage Tax as a Musician
Author: Russell SmithSeptember 13, 2016
Confused about tax for musicians? Our guide will clear things up.
Music. It’s an important part of our cultural heritage, and an institution of happiness that brings joy to people the world over. The creativity behind music and the freedom of expression it allows is a beautiful thing.
Yet, even music isn’t free from the world of taxes.
Musicians and taxes go together like reggae and country and western, but if you want to get into the music field, it’s a necessary, slightly less glamorous side to the rock ‘n’ roll lifestyle.
In this guide, our expert chartered accountants from Leeds run through the basic obligations of tax for musicians. We’ll tell you what you need to be paying, how you can save a bit of money and some key financial advice for the road.
Tax for Musicians: Where to Start
It might be one of the most exciting careers out there, but a solo musician without a record label or contract falls under the same category as any other person working for themselves: a sole trader.
Musicians are self-employed workers, just like many plumbers, freelancers, gardeners and shop owners, and therefore must abide by the same tax laws.
This includes payment of national insurance and income tax after earning over the minimum tax allowance threshold — currently £11,000 for 2016/2017.
All you need to do is register with HMRC as a service provider and you’ll be given access to online platforms for annual tax payment.
Once you are set up, it’s a good idea to prepare for the tax year ahead by creating a bookkeeping system to track and monitor your income and expenditure. For a musician working alone, putting on a show at local gigs and concerts, you probably won’t need more than a well-formatted spreadsheet.
“But what if I’m part of a band?”
Unless your band or group is tied together under a contract, label or limit company, you’ll still count as separate sole traders. You must each file your taxes individually.
What to Pay Tax On
You must pay tax on any income you gain through working as a musician. This includes:
- Gigs and concert earnings
- Tips and bonuses paid by the venue
- Money earned from busking
- Sales of CDs or online tracks
As a sole trader, you are solely responsible for making sure tax reaches HMRC from income payments. Here’s a brief musician’s tax guide for ensuring your tax returns are honest and accurate:
Record income as soon as it comes in on a spreadsheet — whether it’s a £1 song sale or a £500 venue fee. Do this consistently. If you are travelling and are unable to record your transactions immediately, make notes on your phone so you don’t forget.
If you want something a little more in-depth, check out our tax advice infographic.
Tax Deductions for Musicians
As a sole trader, while you have to deal with the nasty business of tax, you also get the added benefit of being able to claim some of the costs back through expenses — and there are plenty of expenses available for musicians.
Expenses are essentially something that is either ordinary or necessary for the operation of your business. What exactly qualifies as an allowable expense varies from job to job. For a musician, a guitar would be accepted as ordinary and necessary, while it wouldn’t for a plumber.
So, what exactly are the tax deductions available for musicians?
- Marketing Costs – Flyers, posters, etc
- Travel Expenses – Train tickets, petrol costs
- Instruments – Guitars, drums
- Instrument Repairs – Fixing equipment if it becomes damaged and stops you from performing
- Production Equipment – Laptops, editing software
- Instrument Insurance – Protect your livelihood
- Recording Fees – Studio rental, rehearsal room hire
- Commissions – Fees paid to agents for gigs
- Gig Equipment – Sound equipment, lighting, microphones
- Music – Backing tracks, sheet music
- Accommodation – Hotels during overnight gig trips
As you can see, there are plenty of options available for cutting down your tax bill. But you should also be cautious; HMRC does all it can for ordinary and necessary expenses, but they do not allow for luxury.
In the case of travel, they will allow you to claim trains, taxis and petrol, but they won’t allow you to claim first class train tickets or limos. They’ll also allow you to charge a hotel room as an expense, but only if it is reasonably priced. Don’t go thinking you can enjoy the Ritz with a little tax break on top.
Another important note: tax expenses aren’t total remuneration of costs. They are just a reduction in the amount of tax you owe. If you pay £400 for a guitar, the government won’t repay you £400, they’ll just increase your untaxed income from the basic £11,000 to £11,400. It’s not a huge amount of money, but it is saving you tax.
To make claims, you must keep all evidence of transactions, like receipts and invoices. HMRC won’t take your word for it. If you want to claim items as expenses, you must have evidence to back up the claim you paid for it.
“Our band has joint expenses. How do we account for those?”
The band comes first, right?
Your drummer doesn’t need a new set of drums, the band does. Musicians working together will often combine their financial resources for the good of the group.
However, while you may have all pooled together to buy a £800 drum kit, HMRC still needs to deduct it. Let’s say there are four members of your band and you each put in £200 for the music equipment. That £200 is what each individual claim on their tax returns.
To make this claim, be sure to have two things:
- The receipt for the drumset
- Evidence of withdrawal of £200
Need some help dealing with tax for musicians? Our expert accountants from Leeds can help.
Image via Ninac26 / Flickr