Brand New!! 10 Taxation Tips For Artists

Here's Ten Tax Tips for Artists - some of which are reminders for me this fourth dimension side yesteryear side year! Plus some links to guidance on what to practice together with what non to do!

I'm simply finishing upward my taxation render (due 31st Jan 2013) together with I'm simply reflecting on

what are the things I'd want I'd known when starting out and
what are things I desire to recall for side yesteryear side year's taxation accounts

In my experience, anybody who is willing to pass some fourth dimension sitting downwardly together with reading the guidance notes should live able to compile their ain taxation accounts together with practice their ain taxation render online unless their affairs are complicated.

So hither are some tips for how to brand things easier when it comes to doing your taxation render equally an artist. So simply to larn an overview first......

File equally yous go
Hobby income is nonetheless income
You tin give notice work short-form accounts
Develop an organised folder scheme for unlike taxation years
Keep business organisation transactions inwards a divide banking enterprise account
Learn how to work a spreadsheet
Foreign Income is only complicated for some people
Register to work the online self-assessment system
Tell the taxation people if yous larn self-employed
Learn the departure betwixt income/expenditure together with receipts/payments - together with all nearly allowances!

At the terminate you'll discovery a link to a downloadable toolkit to banking enterprise check for errors inwards your 2011-12 self-assessment render which must live inwards yesteryear 31 Jan 2013 - or yous incur a £100 fine

together with directly to business.........

Note: I'm non offering this equally "proper professional person advice" equally I've retired from my professional person life (who knew I qualified equally an accountant?) and no longer pay a subscription to my professional person institute or professional person indemnity insurance. If your affairs are complicated together with yous require professional person advice, yous require to discovery somebody who has electrical current expertise.

1. File equally yous go

I cannot emphasise how much this is essential to peace of heed at the terminate of the taxation year. The basics of "file equally yous go" are:

have a robust taxation file
put all your paperwork into it

That's it! That way yous won't live hunting around for the paperwork together with the receipts "which yous know yous pose somewhere" when fourth dimension comes to practice your taxation return. If you're bad nearly putting things inwards files larn a spike together with spike your paperwork - together with that way it can't float away or larn buried - together with and so file when yous larn circular to it!

However at that topographic point is a fleck to a greater extent than to it than that if yous desire to maintain things simple.

Many moons agone I in ane trial sat downwardly amongst a friend who was a professional person jeweller who hadn't got a clue nearly taxation records or accounts. He pulled out his shoe boxes which were piled high amongst receipts - together with that was equally far equally he'd got. I spent an even sat on the flooring amongst him sorting out his newspaper records into piles for the purposes of starting to create a fiscal tape of his business organisation inwards the previous year.......

If yous desire to larn sophisticated, this is the side yesteryear side pace up. You require THREE files!

one file for income paperwork eg copies of invoices together with orders fulfilled
one file is for expenses paperwork eg copies of orders/receipts for buying materials, payment of competiton fees together with subscriptions
one file for all major uppercase expenses amongst a life of to a greater extent than than ane twelvemonth eg computer, easel etc (these are treated separately for the role of uppercase allowances)

Good tape keeping is essential equally poorly kept records tin give notice hateful that data provided is not accurate. This may termination inwards non-business expenses existence incorrectly recorded or misposted inwards the business organisation records together with claimed inwards mistake equally allowable expenses. Conversely justifiable business organisation expenditure may non live claimed or claimed inaccurately.Private together with Personal Expenditure Toolkit 2011-12 Self Assessment Tax Returns (see link at end)

2. Hobby Income is Still Income

Many artists start out icon equally a hobby. Some relish it together with enjpy making sales together with start to class themselves equally semi-professional. Some continue to earlier becoming proper profesional artists. However fifty-fifty professional person artists tin give notice also have got other jobs - such equally existence an fine art instructor - which way existence an creative someone is non ever a total fourth dimension occupation.

Even if you're non a full-time or professional person artist, all income yous generate counts equally income so far equally the taxation people are concerned. It doesn't come upward gratuitous of tax! You require to brand certain yous include it inwards a taxation render unless your taxation people have got a ruling that anything that is really peanuts is "de minimus". (see Tell the taxation people if yous larn self-employed)

De Minimus is a really useful concept - getting the pennies right is non what it's all about. Getting larger sums right is essential if yous are to avoid fines.

An abbreviated shape of the Latin Maxim de minimis non curat lex, "the constabulary cares non for modest things." H5N1 legal doctrine yesteryear which a courtroom refuses to consider trifling matters.

legal-dictionary.thefreedictionary.com/Deminimus

3. You tin give notice work short-form accounts

In the Great Britain any business organisation generating less than £73,000 only has to render 2 totals on their taxation render from their self-employed business organisation activities - ane for income together with ane for expenses. Plus a total for whatever uppercase allowances if these are applicable.

In effect, this taxation threshold for how detailed your accounts require to live for the taxation submission sits at or simply below the threshold for VAT registration. The VAT Threshold has simply risen to turnover of £77,000 so I'd await the threshold for short-form accounts may ascension for the 2012/2013 taxation twelvemonth - but don't quote me on that!

4. Develop an organised folder scheme for unlike taxation years

I am over-organised when it comes to data processing scheme folders - which way I tin give notice locate anything to a greater extent than oftentimes than non inwards nether v seconds.

I know I don't desire to confuse ane taxation twelvemonth amongst some other (which is really slow to practice amongst honour to records - they all expression really similar!). Hence I have got a folder scheme which plant equally follows

ALL TAX RECORDS

folder for each taxation year

folders for: taxation return; income; expenses

spreadsheets which divide out unlike types of income together with unlike types of expenses - together with differentiate the draft taxation render from the ane that was filed.

5 Keep business organisation transactions inwards a divide banking enterprise account

It simply makes life so much simpler - I desire to maintain all my domestic "ins together with outs" completely divide from all business organisation income together with expenditure. It doesn't have got to live a proper business organisation banking enterprise business organisation human relationship - yous tin give notice simply opened upward a minute banking enterprise account. This is the banking enterprise business organisation human relationship to link to PayPal for business organisation income together with payments.

At the terminate of the twelvemonth impress off a transaction listing - it provides a goodness banking enterprise check for making certain you've got everything listed inwards your taxation accounts. You tin give notice also live really business-like together with impress this off in ane trial a calendar month or in ane trial a quarter. File the printout inwards your taxation records file.

6. Learn how to work a spreadsheet

Life becomes so much simpler if yous know how to work a spreadsheet. There's no require to work fingers or a calculator, the spreadsheet does it all for yous - so long equally it is fix correctly!

For those amongst basic levels of income together with expenditure together with quite unproblematic affairs, a spreadsheet is fine. If life equally an creative someone starts becoming to a greater extent than business-like together with complicated together with so yous mightiness desire to start looking at some of the software which says it makes your life easier. However at that topographic point are really few around which are specifically designed for artists so you'll discovery you'll belike nonetheless require to arrange them to brand them move for you.

I'll render to the theme of the contents of a basic spreadsheet inwards some other post.

7. Register to work the online self-assessment system

The things that freaks most people out is the thought of having to move out how much taxation together with NI they owe HMRC. However there's no require - the online scheme does it for you!

The fiscal affairs of most artists are belike pretty straightforward - fifty-fifty if they involve multiple activities - together with they simply require recording properly - addition a fleck of reading of taxation guidance notes for unlike aspects.

I would strongly suggest people to register for online self-assessment. That way their taxation neb is calculated automatically. Also the way the HMRC scheme plant way to larn to consider what the comport on of specific adjustments are earlier yous file yous concluding return.

8. Foreign Income is only complicated for some people

Many of us directly earn income from overseas.

However, although this has been directly been happening for some time, every fourth dimension I larn to the unusual income fleck on the taxation shape I freak out - until I recall that the Inland Revenue only desire to know nearly it inwards special for specific reasons - such as:

untaxed involvement or gains from overseas (ie those who are possible trying to avoid payment of tax) or
those who had their income taxed overseas together with require to avoid existence taxed twice.

In general, artists who are earning income because they sell their fine art to overseas customers don't have got a problem.

Foreign income or income gains is the Tax Note which provides guidance for the self-employed re business organisation income generated yesteryear overseas customers. This is what it says

The next items should non live included inwards the Foreign department but inwards the relevant department of your Tax Return instead:

foreign income earned yesteryear your business organisation or partnership goes inwards the Self-employment or Partnership sections

any taxable uppercase gains arising from the disposal of overseas assets goes inwards the Capital gains summary section

foreign work income goes inwards the Employment section

9. Tell the taxation people if yous larn self-employed

This is NOT an option. The most of import thing yous require to know is you MUST tell HMRC if yous larn self-employed.

How practice yous move out whether or non you're self-employed? Here's the HMRC examination which is used to tell whether yous are self-employed or not

You are belike self-employed if you:

run your ain business organisation together with accept responsibleness for its success or failure

have several customers at the same time

can determine how, when together with where yous practice your work

are gratuitous to hire other people to practice the move for yous or aid yous at your ain expense

provide the principal items of equipment to practice your work

There are diverse pages on the HMRC website which are specifically for the self-employed - including those who are "employed together with self-employed"

There are several Guidance Notes together with it's worth studying all of them. These are the links to the Guidance Notes on:

Self-employed taxation together with National Insurance - this contains guidance on:

Employed together with self-employed taxation together with National Insurance

If yous earn income from both work together with self-employment together with so yous pay whatever Income Tax together with National Insurance contributions due separately together with inwards unlike ways.
The total amount of taxation together with National Insurance contributions yous pay is based on:

your combined income from both jobs - or all your jobs if yous have got to a greater extent than than two

any allowances together with reliefs yous get

your profits from self-employment

Basically all that way is they desire to know how much yous got paid, how much taxation you've paid inwards advance together with and so the online self-assessment scheme volition automatically move out what yous require to pay re whatever unpaid taxation and/or NI contributions - or indeed if the Revenue needs to refund whatever coin to you!

10. Learn the departure betwixt income/expenditure together with receipts/payments... together with all nearly allowances!

Many artists, when starting out. tape all transactions as receipts and payments. However taxation inwards full general plant on the footing of when the transaction occurred which gives ascension to income or expenditure ie which taxation twelvemonth gave ascension to the income or the expenditure.

Receipts together with payments - this way of recording follows strictly cash accounting principles ie the catamenia of business organisation human relationship only includes the dates together with transactions when yous have coin or brand a payment.

Income together with expenditure - relates all fiscal transactions to a fourth dimension catamenia irrespective of whether the cash has really changed hands. The concept of debtors and creditors (those yous owe together with those who owe you) and turn a profit or loss for a catamenia only arises inwards relation to income together with expenditure for activity inwards a specific period.

Example: You render one-off tuition for a fee for a course of report inwards the lastly calendar week of the taxation twelvemonth 2012. You don't larn paid until the side yesteryear side taxation year. However yous delivered the pedagogy inwards 2012 together with the income yous earned equally a termination is income due to yous for activity inwards 2012. The scheme which employed yous for a fee is classified inwards your accounts equally a creditor. The fee income earned hence counts for the purposes of income earned inwards the taxation twelvemonth 2012 together with is included inwards your taxable income for 2012.

Proper accounts ever follow the income together with expenditure method of accounting.

It's worth also getting to grips with:

special allowances for artists
allowances for specific expenses HMRC has rules nearly what yous tin give notice together with cannot claim equally an allowable expense.
capital allowances for major items of expenditure. HMRC use Capital allowances (now known equally Annual Investment Allowances) to allow business organisation to write off the costs of uppercase assets (i.e. whose work is consumed over time), such equally establish together with machinery, against their taxable income. Find out to a greater extent than nearly uppercase allowances

Special allowances for artists

One of the interesting aspects of existence an creative someone is that the taxation people recognise that cashflow tin give notice live really erratic. Hence they allow yous to average your income across the taxation years together with live taxed accordingly. However inwards social club to practice this yous require to claim this allowance/treatment

HS234 - Averaging for creators of literary or artistic plant (2012) is the guidance complaint which helps authors together with artists who have got fluctuating profits create total inwards the Self-employment page of their Tax Return. It defines who tin give notice claim, what the atmospheric condition are for the claim together with how the claim works.

Capital together with revenue - allowances together with reliefs

Here is some guidance on the Tax allowances together with reliefs if you're self-employed -

Here's the guidance equally a pdf file Expenses together with allowances for the self-employed - what yous require to know (PDF 108K) This defines inwards to a greater extent than special what are allowable together with non-allowable expenses.

A business organisation expense is allowable if it:

isn't uppercase expenditure

isn't specifically non-allowable

is wholly together with alone for business organisation purposes

One allowance which is worth knowing is how much yous tin give notice claim for using your motorcar to carry artwork to an exhibition. You tin give notice work the Approved Mileage Allowance Payments (AMAPs) - which is updated annually - for the purposes of calculating the terms of a trip (assuming you've got a complaint of the mikeage). You tin give notice accuse 45 pence a mile for the get-go 10,000 miles together with 25 pence a mile thereafter of yous work your motorcar or van for business organisation purposes. You tin give notice fifty-fifty accuse twenty pence a mile if yous work a bicycle!

This is the HMRC's Private together with Personal Expenditure Toolkit 2011-12 Self Assessment Tax Returns. Worth a read!

This toolkit is aimed at helping together with supporting taxation agents together with advisers yesteryear providing
guidance on the errors nosotros discovery unremarkably occur inwards relation to private together with personal expenditure. It may also live helpful to anyone who is completing an Income Tax Self Assessment taxation return.

Over to you!

Two questions:

So - did whatever of the to a higher house come upward equally a surprise?
What recommendations practice yous have got for artists starting out together with doing their taxation returns?

and finally......

Don't forget! You automatically incur a £100 fine if yous immature adult woman the 31st Jan deadline for filing your taxation return. If your taxation render is to a greater extent than than iii months tardily yous volition start to incur penalties of £10 per day.

UPDATE 2016: You tin give notice directly discovery to a greater extent than taxation tips at the Tax Tips for Artists spider web page I made subsequent to this post

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