Ten Revenue Enhancement 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 practise too what non to do!

I'm only finishing upwards my revenue enhancement render (due 31st Jan 2013) too I'm only reflecting on

what are the things I'd wishing I'd known when starting out and
what are things I desire to retrieve for side yesteryear side year's revenue enhancement accounts

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

So hither are some tips for how to brand things easier when it comes to doing your revenue enhancement render every bit an artist. So only to larn an overview first......

File every bit y'all go
Hobby income is nonetheless income
You tin usage short-form accounts
Develop an organised folder scheme for dissimilar revenue enhancement years
Keep business organisation transactions inward a split banking concern account
Learn how to usage a spreadsheet
Foreign Income is only complicated for some people
Register to usage the online self-assessment system
Tell the revenue enhancement people if y'all give-up the ghost self-employed
Learn the departure betwixt income/expenditure too receipts/payments - too all nearly allowances!

At the halt you'll uncovering a link to a downloadable toolkit to banking concern check for errors inward your 2011-12 self-assessment render which must live inward yesteryear 31 Jan 2013 - or y'all incur a £100 fine

too straight off to business.........

Note: I'm non offering this every bit "proper professional person advice" every bit I've retired from my professional person life (who knew I qualified every bit an accountant?) and no longer pay a subscription to my professional person institute or professional person indemnity insurance. If your affairs are complicated too y'all demand professional person advice, y'all demand to uncovering somebody who has electrical flow expertise.

1. File every bit y'all go

I cannot emphasise how much this is essential to peace of withdraw heed at the halt of the revenue enhancement year. The basics of "file every bit y'all go" are:

have a robust revenue enhancement file
put all your paperwork into it

That's it! That way y'all won't live hunting around for the paperwork too the receipts "which y'all know y'all set somewhere" when fourth dimension comes to practise your revenue enhancement return. If you're bad nearly putting things inward files larn a spike too spike your paperwork - too that way it can't float away or larn buried - too and then file when y'all larn circular to it!

However in that place is a fighting to a greater extent than to it than that if y'all desire to hold things simple.

Many moons agone I i time sat downwardly alongside a friend who was a professional person jeweller who hadn't got a clue nearly revenue enhancement records or accounts. He pulled out his shoe boxes which were piled high alongside receipts - too that was every bit far every bit he'd got. I spent an eve sat on the flooring alongside him sorting out his newspaper records into piles for the purposes of starting to create a fiscal tape of his business organisation inward the previous year.......

If y'all desire to larn sophisticated, this is the side yesteryear side footstep up. You demand THREE files!

one file for income paperwork eg copies of invoices too orders fulfilled
one file is for expenses paperwork eg copies of orders/receipts for buying materials, payment of competiton fees too subscriptions
one file for all major upper-case missive of the alphabet expenses alongside a life of to a greater extent than than i yr eg computer, easel etc (these are treated separately for the move of upper-case missive of the alphabet allowances)

Good tape keeping is essential every bit poorly kept records tin hateful that data provided is not accurate. This may final result inward non-business expenses beingness incorrectly recorded or misposted inward the business organisation records too claimed inward mistake every bit allowable expenses. Conversely justifiable business organisation expenditure may non live claimed or claimed inaccurately.Private too Personal Expenditure Toolkit 2011-12 Self Assessment Tax Returns (see link at end)

2. Hobby Income is Still Income

Many artists start out prototype every bit a hobby. Some bask it too enjpy making sales too start to assort themselves every bit semi-professional. Some give-up the ghost along to earlier becoming proper profesional artists. However fifty-fifty professional person artists tin also have got other jobs - such every bit beingness an fine art instructor - which agency beingness an creative individual is non ever a total fourth dimension occupation.

Even if you're non a full-time or professional person artist, all income y'all generate counts every bit income so far every bit the revenue enhancement people are concerned. It doesn't come upwards gratis of tax! You demand to brand certain y'all include it inward a revenue enhancement render unless your revenue enhancement people have got a ruling that anything that is truly peanuts is "de minimus". (see Tell the revenue enhancement people if y'all give-up the ghost 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 y'all are to avoid fines.

An abbreviated cast of the Latin Maxim de minimis non curat lex, "the constabulary cares non for pocket-size things." Influenza A virus subtype H5N1 legal doctrine yesteryear which a courtroom refuses to consider trifling matters.

legal-dictionary.thefreedictionary.com/Deminimus

3. You tin usage short-form accounts

In the United Kingdom of Great Britain too Northern Ireland of Britain too Northern Republic of Ireland any business organisation generating less than £73,000 only has to furnish 2 totals on their revenue enhancement render from their self-employed business organisation activities - i for income too i for expenses. Plus a total for whatever upper-case missive of the alphabet allowances if these are applicable.

In effect, this revenue enhancement threshold for how detailed your accounts demand to live for the revenue enhancement submission sits at or only below the threshold for VAT registration. The VAT Threshold has only risen to turnover of £77,000 so I'd expression the threshold for short-form accounts may ascent for the 2012/2013 revenue enhancement yr - but don't quote me on that!

4. Develop an organised folder scheme for dissimilar revenue enhancement years

I am over-organised when it comes to electronic computer folders - which agency I tin locate anything mostly inward nether v seconds.

I know I don't desire to confuse i revenue enhancement yr alongside some other (which is really slow to practise alongside abide by to records - they all expression really similar!). Hence I have got a folder scheme which industrial plant every bit follows

ALL TAX RECORDS

folder for each revenue enhancement year

folders for: revenue enhancement return; income; expenses

spreadsheets which split out dissimilar types of income too dissimilar types of expenses - too differentiate the draft revenue enhancement render from the i that was filed.

5 Keep business organisation transactions inward a split banking concern account

It only makes life so much simpler - I desire to hold all my domestic "ins too outs" completely split from all business organisation income too expenditure. It doesn't have got to live a proper business organisation banking concern business organisation human relationship - y'all tin only opened upwards a minute banking concern account. This is the banking concern business organisation human relationship to link to PayPal for business organisation income too payments.

At the halt of the yr impress off a transaction listing - it provides a goodness banking concern check for making certain you've got everything listed inward your revenue enhancement accounts. You tin also live really business-like too impress this off i time a calendar month or i time a quarter. File the printout inward your revenue enhancement records file.

6. Learn how to usage a spreadsheet

Life becomes so much simpler if y'all know how to usage a spreadsheet. There's no demand to usage fingers or a calculator, the spreadsheet does it all for y'all - so long every bit it is ready correctly!

For those alongside basic levels of income too expenditure too quite unproblematic affairs, a spreadsheet is fine. If life every bit an creative individual starts becoming to a greater extent than business-like too complicated too then y'all powerfulness desire to start looking at some of the software which says it makes your life easier. However in that place are really few around which are specifically designed for artists so you'll uncovering you'll likely nonetheless demand to conform them to brand them piece of work for you.

I'll render to the topic of the contents of a basic spreadsheet inward some other post.

7. Register to usage the online self-assessment system

The things that freaks most people out is the thought of having to piece of work out how much revenue enhancement too NI they owe HMRC. However there's no demand - the online scheme does it for you!

The fiscal affairs of most artists are likely pretty straightforward - fifty-fifty if they involve multiple activities - too they only demand recording properly - addition a fighting of reading of revenue enhancement guidance notes for dissimilar aspects.

I would strongly suggest people to register for online self-assessment. That way their revenue enhancement nib is calculated automatically. Also the way the HMRC scheme industrial plant agency to larn to consider what the behave on of specific adjustments are earlier y'all file y'all lastly return.

8. Foreign Income is only complicated for some people

Many of us straight off earn income from overseas.

However, although this has been straight off been happening for some time, every fourth dimension I larn to the unusual income fighting on the revenue enhancement cast I freak out - until I retrieve that the Inland Revenue only desire to know nearly it inward item 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 too demand to avoid beingness 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 inward the Foreign department but inward the relevant department of your Tax Return instead:

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

any taxable upper-case missive of the alphabet gains arising from the disposal of overseas assets goes inward the Capital gains summary section

foreign work income goes inward the Employment section

9. Tell the revenue enhancement people if y'all give-up the ghost self-employed

This is NOT an option. The most of import thing y'all demand to know is you MUST tell HMRC if y'all give-up the ghost self-employed.

How practise y'all piece of work out whether or non you're self-employed? Here's the HMRC exam which is used to tell whether y'all are self-employed or not

You are likely self-employed if you:

run your ain business organisation too have got responsibleness for its success or failure

have several customers at the same time

can create upwards one's withdraw heed how, when too where y'all practise your work

are gratis to hire other people to practise the piece of work for y'all or assist y'all at your ain expense

provide the primary items of equipment to practise your work

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

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

Self-employed revenue enhancement too National Insurance - this contains guidance on:

Employed too self-employed revenue enhancement too National Insurance

If y'all earn income from both work too self-employment too then y'all pay whatever Income Tax too National Insurance contributions due separately too inward dissimilar ways.
The total amount of revenue enhancement too National Insurance contributions y'all pay is based on:

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

any allowances too reliefs y'all get

your profits from self-employment

Basically all that agency is they desire to know how much y'all got paid, how much revenue enhancement you've paid inward advance too and then the online self-assessment scheme volition automatically piece of work out what y'all demand to pay re whatever unpaid revenue enhancement and/or NI contributions - or indeed if the Revenue needs to refund whatever coin to you!

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

Many artists, when starting out. tape all transactions as receipts and payments. However revenue enhancement inward full general industrial plant on the footing of when the transaction occurred which gives ascent to income or expenditure ie which revenue enhancement yr gave ascent to the income or the expenditure.

Receipts too payments - this way of recording follows strictly cash accounting principles ie the menses of business organisation human relationship only includes the dates too transactions when y'all have coin or brand a payment.

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

Example: You furnish one-off tuition for a fee for a course of written report inward the lastly calendar week of the revenue enhancement yr 2012. You don't larn paid until the side yesteryear side revenue enhancement year. However y'all delivered the pedagogy inward 2012 too the income y'all earned every bit a final result is income due to y'all for activity inward 2012. The organisation which employed y'all for a fee is classified inward your accounts every bit a creditor. The fee income earned hence counts for the purposes of income earned inward the revenue enhancement yr 2012 too is included inward your taxable income for 2012.

Proper accounts ever follow the income too 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 y'all tin too cannot claim every bit an allowable expense.
capital allowances for major items of expenditure. HMRC use Capital allowances (now known every bit Annual Investment Allowances) to allow business organisation to write off the costs of upper-case missive of the alphabet assets (i.e. whose usage is consumed over time), such every bit constitute too machinery, against their taxable income. Find out to a greater extent than nearly upper-case missive of the alphabet allowances

Special allowances for artists

One of the interesting aspects of beingness an creative individual is that the revenue enhancement people recognise that cashflow tin live really erratic. Hence they allow y'all to average your income across the revenue enhancement years too live taxed accordingly. However inward club to practise this y'all demand to claim this allowance/treatment

HS234 - Averaging for creators of literary or artistic industrial plant (2012) is the guidance banknote which helps authors too artists who have got fluctuating profits fill upwards inward the Self-employment page of their Tax Return. It defines who tin claim, what the weather are for the claim too how the claim works.

Capital too revenue - allowances too reliefs

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

Here's the guidance every bit a pdf file Expenses too allowances for the self-employed - what y'all demand to know (PDF 108K) This defines inward to a greater extent than item what are allowable too non-allowable expenses.

A business organisation expense is allowable if it:

isn't upper-case missive of the alphabet expenditure

isn't specifically non-allowable

is wholly too solely for business organisation purposes

One allowance which is worth knowing is how much y'all tin claim for using your machine to carry artwork to an exhibition. You tin usage the Approved Mileage Allowance Payments (AMAPs) - which is updated annually - for the purposes of calculating the damage of a trip (assuming you've got a banknote of the mikeage). You tin accuse 45 pence a mile for the showtime 10,000 miles too 25 pence a mile thereafter of y'all usage your machine or van for business organisation purposes. You tin fifty-fifty accuse xx pence a mile if y'all usage a bicycle!

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

This toolkit is aimed at helping too supporting revenue enhancement agents too advisers yesteryear providing
guidance on the errors nosotros uncovering usually occur inward relation to private too personal expenditure. It may also live helpful to anyone who is completing an Income Tax Self Assessment revenue enhancement return.

Over to you!

Two questions:

So - did whatever of the inward a higher house come upwards every bit a surprise?
What recommendations practise y'all have got for artists starting out too doing their revenue enhancement returns?

and finally......

Don't forget! You automatically incur a £100 fine if y'all immature lady the 31st Jan deadline for filing your revenue enhancement return. If your revenue enhancement render is to a greater extent than than iii months belatedly y'all volition start to incur penalties of £10 per day.

UPDATE 2016: You tin straight off uncovering to a greater extent than revenue enhancement tips at the Tax Tips for Artists spider web page I made subsequent to this post

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