Making money from gigs and HMRC

Catthan · October 2013

Hi guys,

I'm expecting to start gaining some extra income from gigging by the end of the year.

Wanted to know what I should do with HMRC -(currently under basic employment, PAYE iirc)- and what can I claim as expenses;

Gig miles, gear depreciation etc etc.

A guy told me once I could even register my flat as the basis of my business (practice, home recording etc) and claim rent as expenses??

If I got this right, I need to register my self again as a self employed musician; or do I need to set up an actual business?

Can I do this now or do I need to start trading - earning first?

And can I register any assets-gear obtained prior to this registration?

Priority is to make sure any money I'll earn is legit and the circumstances transparent and then claim smth back if possible.

I sold a pedal to guy today and asked me for a receipt for his accounts and got me intrigued though I knew I'd have to sort this at some point anyway..

So, how do you guys do it?

I'm only interested in legal, formal procedures, no tricks etc.

Thanks,

T.

Roland · October 2013

For the vast majority of people the earnings from occasional gigs are less than what we spend on music related activities, and HMRC won't bother to get involved.

If your earnings are going to be significant then you need to talk to one of the professionals on here about their experience (which they might not wish to share online).

Catthan · October 2013

Well, according to the other guys in the band who are full time pros, there's good money involved theoretically (function band). It's not enough to live on but imho it's enough to cause suspicion to the HMRC assuming they have an idea of what goes in and out of my account..

Not native so don't know how these things work here.

I'm just thinking, HMRC knows there's X amount in monthly so what happens if suddenly there's X+Y amount with HMRC not having a clue about where Y came from..

But yeah, I don't expect anyone to share their earning rates publicly or privately. Not my business or purpose of the thread.

Just the formal procedure for those to whom gigging is an additional income source.

Things like" you need to call them, ask them to register you as that, describe the assets" etc etc..

If there are sensitive matters in this info then by all means PM me but I don't see how that may be,,

Thanks,

T

Col_Decker · October 2013

ask for cash

put in pocket

walk away whistling

RocknRollDave · October 2013

I registered with HMRC as self-employed for the purposes of declaring my gig income (which is primarily from weddings) but that also runs alongside my regualr PAYE contributions from my day job as an employee in a company. You will need to explain that to them when you register, but do expect to have to tell them two or three times before they get it....

I have to fill in a tax return which documents how much I have earned and offsets it against various things (which I am never 100% sure I have correct, so I shall not advise on that, best to take proper professional advice on that!) I also have to include my earnings in my day job and things like my company car as that affects the tax allowance or something...I don't know, I just fill in what it asks for!

mudslide73 · October 2013

Mine always goes into pub meals to stop Mrs Mudslide from moaning about me gigging

RocknRollDave · October 2013

Col_Decker said:

ask for cash

put in pocket

walk away whistling

Depends how much you earn and also how much input you have into running the band - If your name and phone number is on the website you may end up dropping yourself in it if you don't declare your earnings, for example.

Pub gigs, I certainly wouldn't lose any sleep over it, but if you expect to earn a few thousand from functions etc, it may be a different story.

For me personally, the decision to do it all above board was based on wanting to have a visible, documented income that I could take to the bank for purposes of a mortgage - At first I doubted they would accept a tax return as proof of income, but they reckoned they would. Never tested the point though as I've not applied for a mortgage since!

digitalscream · October 2013

Col_Decker said:

ask for cash

put in pocket

walk away whistling

Given that most of us spend more on gear than we could ever hope to earn from it, I'd say this is a much better process:

Hand over invoice.

Ask for cash or cheque.

Pay into bank.

Do your tax return.

Offset all your GAS purchases against your tax.

Get tax rebate.

Walk away whistling.

Col_Decker · October 2013

I did alright a few £k, though I did seem to loose it all to Wife Tax.

nickp · October 2013

guys

to have to register for tax you have to be carrying on a trade or profession with a view to making a profit. the profit motive is what stops hobbyists registering

so as far as hmrc are concerned - if you make a profit you need to declare irrespective of motive. The motive test is used to restrict loss claims.....If you make a loss, but you are trading with a view to making a profit and ergo are a "proper" business then you can claim the losses and get a tax rebate per @digitalscream.

if you are buggering around and actually make a profit, accidentally or otherwise, then you need to declare it.

as far as expenses are concerned you can claim as expenses virtually anything that you have to spend money on in order to earn more money - the rule is that the expense has to be "wholly and necessarily" incurred for the business. So that means travel, subsistence (if coupled with an overnight stay), strings, lessons, a proportion of your music purchases, music, advertising, computer costs n stuff. you can also claim an allowance (currently 100%) of the gear that you buy. phone costs etc etc. An obvious "not allowable" cost is clothing btw.

use of home is OK too - search for it on the hmrc website because there are different examples depending on how much space and time you spend working at home.

where stuff is used to earn money - ie for the business, and also part privately - so phones for instance, and maybe guitars n stuff, you have to apportion the costs fairly/appropriately - so say 30% of phone bills are business related for example.

there are loads of other rules, and levels and levels of detail - if you want to do it yourself prepare to spend time on the HMRC website or buy a book. Or go get an accountant to do it for you and pay them a couple of hundred quid to do it for you

nick

Catthan · October 2013

Thanks guys,

I think I'm getting the idea.

Am I right understanding that trading with a view to make a profit in this case means show any amount of income from gigs?

(Or teach, or compose/record). Trade=earn

So. I need to trade, aka gig and show income and then can claim expenses and other possible allowances solely related to the gigging business, even if I'm at a loss.

No income (no gigs) but just losses (GAS) means no real business and I'm just trying to fund my GAS illegally- steal HMRC if I make a claim.

No income but just losses (GAS) without self employed registration and claims means right where I am at atm..

Once I do that, can I claim expenses bought for the business prior to the registration date? eg I had to put together a whole new fx board for this band,, I guess it's on an annual basis so it wouldn't make a difference right?

Good thing is there's this lady at work who may be able to help me when the time comes in a month or so..

digitalscream · October 2013

I think "intent" is measured in terms of realistic prospects - if you play a gig a month and consistently make £20 each time with no increase in rate or frequency, then it's unlikely that HMRC are going to view a new £10k rig as a reasonable expense towards the goal of making a profit from that part of your business.

Catthan · October 2013

I understand; it's just that the "intent" may differ from what will happen in reality.

But I get what you mean.

ESBlonde · October 2013

You can make a loss in year one by setting up your business (so rehearsals, gear, etc). as long as the intention is to earn against that in year two (the gig diary would be a good indicator of this). The term wholly and exclusively for the business applies to expenses so clothing is out except something that is clearly stage clothes (Gold satin jacket and Panda bear trousers maybe)? Anything with a dual purpose is assumed private but you can claim a little for business use as Nick said.
Receipts, diary etc all make for nice records to substantiate everything. If you want to have a professional do the numbers you can save lots of money by presenting them with tidy records rather than a carrier bag full of receipts.

ToneControl · October 2013

You should keep all receipts and record of spending, in CASE you make a profit (which is harder than it sounds), if you do, you can back date profits and deduct expenses. If you make no profit there is nothing to pay, and then you'd be thinking "how many £100s a year do I need in takings before HMRC are interested?" my guess is £1k+, but as I say, if you've spent more in tools of the trade, petrol mileage, room hire, hotel bills, lessons, etc.... then offset that.

I knew someone at my last work who did 200+ paid gigs a year, and used to live on it

Dig out all your old receipts and make a note of travel expenses for the last 2 years quick before you forget

RedRabbit · October 2013

Always so much well meaning but misleading advice on these threads.

If you are earning from gigging then you should be registered with HMRC as self employed (or otherwise depending on situation). Intention doesn't matter and neither does level of earning. If your on PAYE then presumably you are already earning enough that any extra income should be subject to tax therefore HMRC are interested.

Obviously cash in pocket is a no-no and it's against my professional interests to suggest otherwise.

Unfortunately, unless you are a genuine full time musician, it probably won't be as simple as 100% of gear expenses being deductable - I'm sure there would be a personal usage adjustment of some sort. I've no idea of percentages as I don't have enough info but I'd guess upwards of 50% reduction dependant on schedule etc. If you fill in a tax return it's up to you to make a suitable adjustment but, if queried, you'll need to defend the figure to HMRC. A 100% claim would only really be suitable if it's something you'd no longer use if you stopped gigging.

Obviously mileage, subsistence etc is fair game but I think use of home for practicing would be a stretch. Again it's self assessment so it'd be your call but one that you'd have to be prepared to defend.

The trouble you have is that you'd be earning from something you'd be doing for pleasure otherwise and HMRC know this.

I'd advise one of two approaches dependant on how much you'll be earning.

If it's not a significant amount talk to HMRC. Be honest and open and ask for advise about allowable expenses. The people who are on the help lines are surprisingly helpful if you do this.

If it's a reasonable amount (i.e. enough to make the associated cost of one worthwhile) contact an accountant. Most decent ones will offer a free initial meeting where you can discuss such matters. Obviously you could take advantage of this and take the advice and walk but if you aren't sure what you are doing then having someone prepare accounts and fill in your return can be worth the cost.

ToneControl · October 2013

good advice from RedRabbit- take a Wisdom

As I say, keep all receipts, but as he says, you can't simply deduct them. The more you earn though, the less like a hobby it will be considered by HMRC. Home allowance for working is peanuts, however if you got an Esmono room for your garage you could claim, costs have to be spread over years, with depreciation and various factors I am too bored to learn, so if you spend a lot of cash, get advice

Does the Musicians' union offer a simple guide for this, since accountants would be expensive

The standard HMRC test is "is an expense wholly and exclusively for the job" - hence the compromise needed if you're not doing many gigs. If you were doing 200 a year, they would have to agree it was a job, not a hobby

Danny1969 · October 2013

RedRabbits is spot on as far as I'm aware. It's self assessment basically, we use a book keeper as although you can do it yourself a good book keeper tends to be up to date with all the twist and turns of tax laws, and know what you can claim for and what you can't. I expect it's changeable but typical cost to me is £20 to £25 an hour depending if the book keeper is coming to me or working from home.

As for making a living from it that's pretty easy if you can live on 12K ish a year. That's only about 5 function gigs a month. Many guys top that up with teaching and dep gigs and earn closer to 20K.

Catthan · October 2013

Thanks very much to all for the wealth of info you ve shared. As I ve said, top priority is to set up everything with complete legitimacy and transparency. Then if I can claim smth back, well, good for me. The expected earnings are in the higher end of the function band income rates but i ll doubt that until we actually get booked. even if we get half the bookings we expect, HMRC involvement will be required. I d do it even if I earned £20/ month just for my piece of mind.

As I've said, I'll consult the tax lady in the company I work with when the time comes
Thanks again,
T.

Grunfeld · October 2013

RedRabbit said:

The trouble you have is that you'd be earning from something you'd be doing for pleasure otherwise and HMRC know this.

HMRC have obviously not played "Sex On Fire" every fricking weekend for a year!

ToneControl · October 2013

http://www.hwfisher.co.uk/images/stories/docs/mutaxguide2012.pdf

this is the guide you need. Loads of stuff in here

JayGee · October 2013

RedRabbit said:

Always so much well meaning but misleading advice on these threads.

If you are earning from gigging then you should be registered with HMRC as self employed (or otherwise depending on situation). Intention doesn't matter and neither does level of earning. If your on PAYE then presumably you are already earning enough that any extra income should be subject to tax therefore HMRC are interested.

If I add up travel expenses to/from rehearsal and paid gigs at the HMRC approved rates, the money I put into the "band kitty" (basically a tenner every time we rehearse to cover rehearsal room hire with a bit over which pays for recording when the surplus builds up enough to cover a useful amount of studio time) and set that against my share of what we've been paid for gigs then I'm definitely running at a loss before I even think about the capital and maintenance costs on gear. This would obviously change if we started playing more/better gigs but until/unless that happens I'm taking the view that I'm not earning anything from gigging and keeping a journal of gig/rehearsal dates, locations, costs, payments etc as supporting evidence.

If that's not enough then unless I'm consistently seeing enough cash flow for someone else to do pretty much all of the work I want nothing to do with it.

In a previous existence I've hosted employer PAYE audits on several ocasions, been on the wrong end of an HMRC employment status investigation (successfully!), and I simply want nothing to do with anything more complicated than the employment related sections of a standard self-asessment form these days. Certainly to keep less than 60% (I'm in the 40% tax band already from employment) of the handful of peanuts a typical pub gig pays It's Just Not Worth The Effort and I'd rather (metaphorically speaking) just go back to the bedroom.

Way to go Hector...

Catthan · October 2013

That's excellent @ToneControl, thanks

nickp · October 2013

jd0272 · October 2013

I contacted HMRC ages ago about this. I managed, thankfully, to speak to a lovely woman who had a brain. Basically, if it ain't your main source of income, you're not relying on it to pay yer mortgage and feed yer kids, if it's not supplying several caribbean holidays per annum, they are not fucking bothered. It would cost them more to process than it would recoup for the Overlords. That's assuming YOU don't take their noses and rub it in the shit about it.

If you feel the need to declare it and can get some fiscal benefit from that, well done. Wish I could

They are actually less mercenary than eBay fees.

Our lead widdler works for HMRC. Says we should be playing more gigs and making more. In the grand scheme of things, it doesn't even scratch the surface folks.

chillidoggy · November 2013

Mrs C usually takes gig of any gig money for me. Generally by pouring it down her neck in liquid form during the event, with her mate and drinking partner the bassist's missus, and we end up with fuck all.

Catthan · November 2013

I've had a chat with our keys man who s a full time pro about this and he was saying we re primarily aiming at the corporate side of functions rather than weddings and there will be invoices and formalities and I'd better look into it once we start earning. He also hinted smth about how it's convenient when after a gig band members fuck off to the bar or for a cig and the risks of having gear stolen etc which means that it will be difficult to sink my earnings down the hatch even though I won't be driving for a least a month after we start playing.. Oh well.

hywelg · November 2013

One thing about gear purchases. They are not an allowable expense in any earnings scenario, unless they are short life items, like drum skins or guitar picks and strings. A guitar purchase would be a capital asset purchase and must be treated as such. If you earn from playing, but it is also a hobby since you are in full or part time PAYE employment then you have to apportion the gig/rehearsal use against private use and be able to justify it. The proportion that an item gets used for the purpose of earning an income, including practising for the gig, is then claimable as a capital asset allowance.

All capital purchases have a first year allowance which in the past has been 100% but it might not be now for Plant and Machinery (the category gig equipment would fall into). If the first year allowance is not 100% then the balance is claimable as a writing down allowance year on year until the whole value of the asset has been claimed.

Basically its a pain in the arse working this out, its the one thing I get my accountant to do for me. I used to run a spreadsheet to keep track of the asset pool for my business (no music related) but I gave up as I was always wrong compared to the accountant.

digitalkettle · November 2013

If you claim for your assets, it can be expensive to close your business and keep hold of them (I think).

hywelg · November 2013

digitalkettle said:

If you claim for your assets, it can be expensive to close your business and keep hold of them (I think).

Indeed, the asset belongs to the business, and any disposal has to be credited/debited to your capital allowance claim. You must be able to justify what you sell it for. So you can't just say a £1000 guitar is now worth nothing and sell it to yourself for 1p.

digitalkettle · November 2013

That's the one...just thought I'd mention it before anyone started scheming

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