Its tax return deadline season and, like every year, many are left panicking about what to do and how to do it right. Here are some essential tips:
· If you are just starting out as a part time or full time self employed worker, you must register with the HMRC as self employed. If you do not do so, you are likely to face a penalty.
· Be honest. In the long run, it will always serve you best to just be honest and pay the correct taxes. Being caught out by the HMRC will never be worth it.
· From the very beginning of your self-employed career you should install good booking keeping methods. Keep all of your receipts and keep them organised. The HMRC are entitled to see any receipts everything you have claimed upon.
· Always keep an extra copy of any letter you write to tax authorities. This can be used as a reference in the future.
· If you are in any doubt about whether an expense is claimable, claim it. A specialist professional can dissect the expense and identify whether it is for you.
· Never ignore communications from the HMRC. This can lead to penalties.
· Whether a mistake has been made or not, do not be rude to the HMRC. Polite communications can grant you a much more sympathetic level of consideration.
· Put money aside each month to account for your tax bills.
There are two key types of income that are relevant to musicians. The first type is money earned from employment or office work- for instance as an employee as a theatres musician. This income is referred to as ‘earnings from employment.’
The second type of income is relevant to self-employed musicians. This includes earning incurred while practicing self-employed work, commonly referred to as‘trading income.’
There are many potential tax saving opportunities incurred whilst working as a musician, more so from ‘trading’ musicians than employed.
In some cases a musician can be categorised as having ‘Reserved Trading Income Status.’ This means that the musician will be able to be taxed on income from theatrical work as self-employed so long as tax liabilities are properly discharged and there is no break in their employment.
Tax and National Insurance as a Self-Employed Musician
If you are employed, your employed will deduct Income Tax and National Insurance from your wage by the PAYE system. Therefore your employed pays on your behalf.
The amount of your income will be deducted through income tax is determined by the PAYE Coding Notice. Class 1 National Insurance is deducted from your salary at a rate of 12% for income between the lower limit of £8,060 and the upper limit of £43,000. An additional 2% is applied for those above the stated threshold. If your earning are below both thresholds you are not required to pay national insurance.
If you are an employee you can only claim expenses against your income that is wholly and exclusively incurred in the duties of employment.
This is tax information is presented to you by Bambridge Accountants. Please note that all information given is generalised and no one should take action without obtaining professional advice.