Tax Advice For Actors And Performers
by Theaccounts, posted 26 August 2015
As a performer, there’s a good chance your income levels fluctuate and are a little uncertain at the best of times.
You’re probably wondering… When do I register as a freelancer? How much tax should I be paying? What can I claim back as expenses? How do I manage my finances?
At Theataccounts, we work exclusively with clients in the entertainment industry, just like you. We like to make tax as simple as possible, so we’ve put together some answers to the most commonly asked questions we get asked.
Do I need to complete a Tax Return?
If you are self-employed/a freelancer, the answer is yes! Unlike being an employee, any payment you receive for freelance work won’t be taxed when you receive it. Instead, you’ll need to declare it on your tax return and pay any tax due. Your tax return needs to be completed by 31 October if you’re submitting a paper return, or by 31 January the following year if you’re filing online. If it’s late, you’ll get a fine and have to pay additional interest on any tax paid late.
What if I’m just starting out?
You need to register with HM Revenue and Customs (HMRC) as soon as possible. Registration can be done online, or if you don’t fancy braving it yourself an accountant will be able to help you. HMRC will then send you your Unique Tax Reference (UTR) number, which you need to keep in a safe place.
What if I have another job too?
It’s often the case that people in the entertainment industry have part-time employed work to see them through. Your tax for this might be paid under the PAYE system, or possibly not. Either way, you will need to keep a record of what you earn throughout the year from all paid work – keep payslips/P45s/P60s in a safe place as you will need details from this to complete your tax return. Combining paid work and self-employment can affect your tax position, so it can be a good idea to get some professional advice on the best way to deal with this.
What records do I need to keep?
You will need to keep a record of all business income and expenditure throughout the year, in order to work out your taxable profit. HMRC defines eligible expenditure as any costs incurred ‘wholly and exclusively’ for the purposes of your business. This might include some of the following;
Agent/Manager Fees and Commission
Travel and Subsistence
Costume and Props
Laundry and Cleaning of costume and props
Postage and Stationery
Computer and Accessories (iPad/Mac/Camera)
Bank Charges on a business account
Subscriptions (Equity/The Actors Guild/To Be Seen etc)
Advertising and publicity
Theatre & Cinema tickets relevant to your self-employment
Research material relevant to your self-employment (Film/Music)
Training and lessons
Office/space hire costs
This list is just a guide, as there may be different costs that you incur. Any expenditure required to run your business or work as a freelancer can be tax deductible. Some costs may have a ‘duality of purpose’ (e.g. using the same phone for business and personal calls), so you will need to ensure that only the business proportion is included on your tax return.
How much tax will I have to pay?
Any money left after deducting your expenditure from your income is taxable profit, and you will need to pay 20% tax on this amount. For the 2015/2016 tax year, the Personal Allowance is £10,600, so you will only be taxed on profit above this amount. For example, if your taxable profit is £12,600, you will only pay tax on £2,000 of those profits, so your tax would be £400.
What about National Insurance?
There are two main classes of National Insurance Contributions (NICs) which apply to freelancers: Class 2 and Class 4.
Class 2 NICs are charged at £2.80 per week, and from April 2015 you pay these at the same time as your tax and Class 4 NICs. Previously, these were automatically payable, but this has changed for the 2015/16 tax year onwards. If you were paying by direct debit, HMRC should have cancelled this after July 2015.
As with income tax, there is a certain amount you can earn before you have to pay Class 2 NICs, but you may decide to pay voluntarily to protect your entitlement to contributory benefits. If your earnings are under the Small Profit Threshold (£5,965 for 2015/16), you no longer have to apply for exemption.
You are also required to pay Class 4 NICs which is 9% of your taxable profit, after deducting the lower limit of £8,060. For example, on a profit of £12,600, Class 4 NI due would be £408.60.
So with a total profit of £12,600, you would pay tax of £400 and Class 4 NI of £408.60. There would also be Class 2 NIC added on top.
Depending on your level of profits, a Limited Company may be more tax efficient. This has the potential to save you money, but you should seek advice from an accountant to discuss your personal circumstances further. We offer this advice for free.
When do I pay?
The tax year runs from 6 April to the following 5 April. Your tax balancing payment is payable by 31 January each year. The January payment may also include a payment on account for the following year. Where possible you should complete your tax return before 31 July, as you may then be able to reduce this payment on account.
Payments on account are confusing, so here’s an example;
You have to make 2 payments on account every year unless:
your last Self-Assessment tax bill was less than £1,000
you’ve already paid more than 80% of all the tax you owe, e.g. through your tax code or because your bank has already deducted interest on your savings
Each payment is half of your previous year’s tax bill. Payments are due by midnight on 31 January and 31 July.
If you still have tax to pay after you’ve made your payments on account, you must make a ‘balancing payment’ by midnight on 31 January next year.
Your bill for the 2014 to 2015 tax year is £3,000. You made 2 payments on account last year of £900 each (£1,800 in total).
The total tax to pay by midnight on 31 January 2016 is £2,700. This includes:
your ‘balancing payment’ of £1,200 for the 2014 to 2015 tax year (£3,000 minus £1,800)
the first payment on account of £1,500 (half your 2014 to 2015 tax bill) towards your 2015 to 2016 tax bill
You have to pay your second payment on account of £1,500 by midnight on 31 July 2016.
If your tax bill for 2015 to 2016 is more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2017.
Trying to calculate what you’ll have to pay throughout the year can be quite confusing. Planning ahead is important so you don’t get any nasty surprises when the tax bill comes through!
What about VAT?
If your turnover is more than £82,000 in any cumulative 12 month period, you should tell HMRC and in most cases you will need to register for Value Added Tax (VAT). This means that you will then add VAT to all your fees and account for them to HMRC.
It can sometimes be beneficial to register even before you reach the threshold but you should speak to an accountant to discuss this. We would be happy to help.
What if I don’t get my tax affairs right?
Basically, under the tax self-assessment system, you do all of the work and then HMRC charge a certain amount of tax and National Insurance based on the figures you’ve given them in your tax return.
With powerful computer software which accesses a range of records, HMRC can spot discrepancies in your tax return in seconds. They can also investigate your affairs at any time. It’s best to make sure everything is in order now to save yourself a lot of time, money and stress.
If you’re thinking of using an accountant, our advice would be to always get a recommendation or ask to speak to one of their clients. Have a chat with the person who will handle your accounts to ensure that you are happy to work with them.
Theataccounts are specialist accountants for the entertainment industry. Alex Dyer and his team are friendly, professional and dedicated to making tax simple for their clients. Their down to earth approach and simple online software is a big hit with our clients.
If you need any help, please feel free to contact us for a free chat.
Don’t forget to mention ‘To Be Seen’ for your £50 new client discount!