Dealing With Inland Revenue

Big George's Guide To Commercial Success

Published in SOS December 1999
Bookmark and Share

It's easy to bury your head in the sand when it comes to tax matters but, as Big George explains, there are better ways to deal with the Inland Revenue... This is the fifth article in a 26-part series. Read Part 1, Part 2, Part 3, Part 4, Part 6, Part 7, Part 8, Part 9, Part 10, Part 11, Part 12, Part 13, Part 14, Part 15, Part 16, Part 17, Part 18, Part 19, Part 20, Part 21, Part 22, Part 23, Part 24, Part 25 and Part 26.

They (whoever 'they' are) reckon there are two inevitabilities in life: death and taxes. I imagine we've all, at one time or another in our musical career, died on stage, or had our latest track met with deathly silence. So, if we're aware of how to deal with the Grim Reaper, what about when the taxman cometh?

Whether you're on benefits, on a training scheme, in full-time education or working as a supermarket shelf-filler, if you earn money from your musical exploits - and that includes gigs, teaching, hiring out your setup, selling your music to someone else, and so on - you're legally bound to tell the Inland Revenue how much you make. It's your responsibility to inform them, not theirs to inform you. And be warned, they'll go to the ends of the Earth to get every penny you owe them!

Clear As Mud

If your sole income is from music and you're self-employed, you'll already be aware of Self-Assessment Forms. If not, you'll have to ask for one to be sent to you. The deadlines that Hector, the scary bowler-hatted TV cartoon, is always shouting about are the 30th September and 31st January. Now don't get confused, but those dates have nothing to do with the end of the tax year, which is the 6th of April, or your tax year, which can be any date you like! (Although once you've picked it, there's no going back, unless material circumstances dictate that it'd be financially prudent to your fiscal position to re-evaluate...)

  Nett Or Gross  
  Richard Branson says he still doesn't know the difference between gross and nett. If that's true, and not a sad piece of endearing media hype, is he really the man you want to make the condoms to protect you on your train journey to catch a plane? It's simple:

Gross (or turnover) is the entire amount you get for all the paid work you do.
Nett is what's left after you've deducted all the expenses.

So, for instance, let's suppose you get £1000 for a job, and the studio costs you £300, the drummer charges £150 (cheap), the tape stock is £30, delivery costs £12, a tuner battery £3, a DAT £5, the cab fare to and from the studio was £27 and the train fare to the meeting to discuss the job was £13. In this case, the gross is £1000 and the nett is £460. Now then, anyone fancy a can of Cola?

 
You think that's confusing? It's a total nightmare of balancing columns and deducting allowances. Or is it? It all depends on how much you're making. If it's more than two grand a week, I suggest you get an accountant to read this article for you. Whereas if it's £50 here and £250 there or thereabouts, the need for an accountant is maybe an extravagant deduction too far - it's your call. Doing your own tax return is a doddle, as long as you keep records of all money coming in and going out. You'll need to keep these for at least six years in case they want to investigate you. Which they won't, just as long as you're not hiding anything from them, like cash payments from a gig, or insurance settlements.

Terms And Confusions

The language the Inland Revenue use can make it feel like you owe them one million pounds and it's due in five minutes or you'll go to prison for the rest of your life. But that's just their way, and once you get to know them, they aren't so bad. And their vocabulary gets easier to understand. Let's start with the basics...

'Turnover' is all the money you receive for your services. 'Expenditure' is a bit more complicated, but here's the gist of it. You can claim for anything you use in the course of earning money (but you must keep the receipts). This means that if you use the phone for a business call, you can claim a percentage of the phone bill. Likewise, if you need to travel to a business meeting, or a recording session, your travel expenses can be claimed. There's also something called 'Capital Allowance' - see box for full details.

If you're in any doubt as to whether something is allowable as an outgoing expense, call your local tax office, they'll be happy to advise you. As for the dates that are postered everywhere:

  • September 30th is the last day you can send in your tax form and have the Tax office guarantee to calculate your bill.
  • January 31st is the last day you can put in your calculated Self-Assessment form without getting a fine of £100 (and that's only the beginning of the fines).
  • April 6th is the beginning of what they call the tax year.
  • Your tax year can start on any date; they'll advise you on that too, but a second opinion is never a bad thing to get.

Then it's just a simple matter of working out what's come in, what it's cost you to get that money in, and the difference between the two (turnover minus expenditure equals taxable income, less personal allowances). If you've kept the receipts and written everything down, it shouldn't take you more than a full day or so a year to sort it out for yourself. If, after reading this column and all the little calculus boxes, you feel you'll definitely need an accountant, you'll still need to keep yourself in good order book-keeping-wise.

  For More Info  
  Copies of the vast number of helpful little booklets the Inland Revenue publish 'to make your life easier' are available from your local tax office. They're slightly easier to understand than your average sampler manual. You'll find the Inland Revenue's telephone number in the phone book under 'Inland Revenue', or check their web site (www.inlandrevenue.gov.uk), or call the self-assessment hotline (0645 000444), or email them on saorderline.ir@gtnet.gov.uk. They are always eager to be of assistance to their customers!  
Under £300 Per Week

If your turnover is less than £15,000 per year, all the Inland Revenue want from you are what they call 'three-line accounts'.

  • Line 1: Your turnover.
  • Line 2: Your expenditure including capital allowances (see box).
  • Line 3: Your profit (Line 1 minus Line 2).

So if Line 1 (your turnover) is £14,500 and Line 2 (your expenditure) is £8,000, then Line 3 will be £6,500. Then you subtract your personal allowance, which is £4,335, leaving a taxable profit of £2,165. Now it starts to get a little complex, as the first £1,500 of this is taxed at 10 percent, while from £1,500 to £28,000 it's taxed at 23 percent. If your profit is over £28,000 you're at the top rate of 40 percent, and to reach that level of profit you must be coining it in. The tax due on our example taxable income of £2165 is: 10 percent of £1,500 (=£150) and 23 percent of the remaining £665 (=£152.95), making a grand total of £302.95 to pay for the entire year. But if you're married, you are allowed an extra £197 off your bill, taking that figure down to £105.95.

  Capital Allowance  
  Capital Allowance refers to the money you spend on equipment (large purchases) used to earn your dosh. You claim 25 percent of the cost for the first year, then 25 percent of the 75 percent left the next year and so on. As you buy other equipment, the amount paid is added to your capital allowance figure. If you sell a piece of equipment, you deduct the price you get from your capital allowance figure, and if you dump it because it's obsolete, your capital allowance is unchanged.

So, for a keyboard which costs you £1000 in the first year, you claim £250, leaving a capital allowance of £750 for the second year. The second year, you claim £187.50 (25 percent of £750), leaving a capital allowance of £562.50 for the third year. The third year, you claim £140.63, leaving a capital allowance of £421.87 for the fourth year. The fourth year, you claim £105.47, leaving a capital allowance of £316.40 after five years. And so it goes on...

Capital allowances are generally large items like computers, main keyboards, sound modules and so on. Things like Zip disks, strings, fax paper, postage, travel expenses, leads, PCI cards, communication bills, plectrums, and modems are termed 'Running Costs'. You can claim 100 percent of the cost of these, if you use them solely for your business, or a percentage if you use them for personal use. What percentage is down to you to decide - but remember, if you try to defraud the Taxman and he finds out, you're clobbered.

 

If you earn more than £15,000 you'll need to go into your turnover and expenditure in a little more detail. Which will only get really painful if your accounts are in bad shape or the Inland Revenue have good reason to believe that you're defrauding them. Remember, the tax due on £50 is only £11.50 tops, but having one of Her Majesty's tax officers looking closely at your affairs is a major drag - even for the most honest of us. It just isn't worth it.

Writing down the nooks and crannies of your music-making existence, however much you make, is something worth getting used to. Apart from income tax, there are business plans, loan applications and arts grants all waiting for you to take full advantage of their financial generosity. We'll look at those next month. If you have anything you think I ought to look into on your behalf, write to me here at SOS or email big.george@soundonsound.com. See you next month!


September 2014
On sale now at main newsagents and bookstores (or buy direct from the
SOS Web Shop)
SOS current Print Magazine: click here for FULL Contents list
Click image for September 2014

 

Home | Search | News | Current Issue | Tablet Mag | Articles | Forum | Subscribe | Shop | Readers Ads

Advertise | Information | Privacy Policy | Support | Login Help

 

Email: Contact SOS

Telephone: +44 (0)1954 789888

Fax: +44 (0)1954 789895

Registered Office: Media House, Trafalgar Way, Bar Hill, Cambridge, CB23 8SQ, United Kingdom.

Sound On Sound Ltd is registered in England and Wales.

Company number: 3015516 VAT number: GB 638 5307 26

         

All contents copyright © SOS Publications Group and/or its licensors, 1985-2014. All rights reserved.
The contents of this article are subject to worldwide copyright protection and reproduction in whole or part, whether mechanical or electronic, is expressly forbidden without the prior written consent of the Publishers. Great care has been taken to ensure accuracy in the preparation of this article but neither Sound On Sound Limited nor the publishers can be held responsible for its contents. The views expressed are those of the contributors and not necessarily those of the publishers.

Web site designed & maintained by PB Associates | SOS | Relative Media