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Musicians and Self Employment?

Musicians and Self Employment?

Can a musician register as self-employed to offset costs, such as studio time for recording tracks, travel to gigs and general musical expenses (instrument consumables etc) against the tax paid during employment in the same year?

They are currently employed but spend 50% of their time also pursuing a career in music, unfortunatly for them the music isn't paying the bills at the current time so the employment (where PAYE/NI is paid through the employer) is a neccesity.

I understand there are alot of specific rules around musicians and actors and what can and can't be claimed for which I would suggest they visit an accountant about but my query is more general about if this is an allowable reason to register as self-employed?

I actually think that they should be registered anyway as they also write 2 regular magazine articles each month for different publications for which (I think) they are paid cash.

I have read somewhere about music being viewed as a hobby for some people, however I can't seem to find any distinguising rules from HMRC about when they class music as a hobby and when it becomes a profession (the person in question certainly doesn't see it as a hobby, but is this enough?)

Any comments welcome as I would like to advise them on the best way forward and not lead them in to thinking they should when actually they can't.

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By afairpo
05th Dec 2012 17:36

Have a look at ...
http://www.bailii.org/uk/cases/UKFTT/TC/2011/TC01373.html - First Tier, so not binding, but it might be a start.

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05th Dec 2012 19:10

Is he actually getting any self-employed earnings?

If he is holding himself out as available for work (as in the case above where the taxpayer had private tuition and some gigs) then he is carrying on a trade or profession.

He would need to be able to prove this though - advertising?

I suspect in the case above the track record of the musician in the past may have helped in terms of "credibility".

 

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06th Dec 2012 09:21

I wonder

whether the revenue would see it as a 'hobby' if he was gigging every other weekend for money.   If he is trying to 'make it' then I am sure this will be reflected in his activity - number of gigs/advertising-promotion/CDs made-sales/equipment etc...

 

one thing to watch out for....instruments have a bad habit of going up in value so watch any claims for capital allowance purposes

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06th Dec 2012 11:11

Thanks all...

I suspect, although I will clarify tonight, that much of what he does is unpaid - he is trying to make it (get discovered as a musician) and with an industry so flooded with xfactor fever there are plenty of people who will play for free so I suspect he would be at a loss to charge for his services, I know he is 'available' for work and maintains a website for bookings and uses the general directory type sites for musicians/actor bookings.

He writes for two magazines so although slightly off point, this should be producing an (if only small) monthly income.

It seems to me that the general guidelines I need to get him to consider are:

1. Having an income from your trade/profession, not just expenses.

2. Not claiming for anything and everything - I would certainly not suggest he claims for his telephone calls and electricity bills (as in the legal case kindly provided by afairpo) I always stick to black and white claims in my returns and don't get in to the grey areas.

3. Being able to justify and prove that you are committed to the profession and it is not a hobby, through advertising and creation of demo cd's etc. which I know he already does

Now my only (or the only) question is why are HM Revenue are so guarded about specific rules? a nice list or what is and isnt allowed surely wouldn't be difficult for all the tax specialists there

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By Monsoon
06th Dec 2012 11:24

Musician

I have a musician client and, yes, he makes losses every year which get set against his day job. However, he is very clearly not doing a hobby and he's working very hard to 'make it' - they got played on Radio 1 recently for example.

I always use wholly and necessarily, and a reasonable apporionment.

To me, the important thing is whether the musician views it as a hobby or a business. If they are trying their darndest to make it into a paying career, then they are running a business, even if their day job is supplmenting those losses. In the case of HMRC, I would have thought that they would need to prove they not only view it as a businesss, but that they have tangible things that prove they are doing it as a business.

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By ACDWebb
06th Dec 2012 11:54

The list is the same as for any business

is it wholly & exclusively for the business.

Have you looked in BIM?

BIM50150Actors and other entertainers

 

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06th Dec 2012 12:11

.

Most bands - even tiny ones - get paid at pub gigs (often as a function of the take on the night), even if it wouldn't cover the petrol for getting there, they will get some cash. 

Only the real dreamers get nothing!

I don't do this type of work but I know a few people in the industry and I would be surprised if there was actually any profit in it for 99% of bands.  A band I am friendly with was played regularly on 6music, toured with a big named act as support on 3 UK tours and still their backers lost money (fortunately not me, I didn't put in!).   The only person I know who makes money from it is in a covers band and does weddings etc, even then for the amount of work involved they don't get a lot per hour. Its for the love! And he is very very good at it. 

 

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By ACDWebb
06th Dec 2012 12:27

Indeed. My rough rule of thumb

Pub/covers bands the chances of a profit tend to be slim to b'all

Functions/wedding bands will probably have a profit if you strip out capital costs for instruments that may actually appreciate - though not all :(

The chances are that a claim mightbe possible, but at the bottom end you are looking at whether or not they are trading with a view to profit or not to decide whether sideways offset is possible.

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06th Dec 2012 12:43

A few points to add

I essentially agree with ireallyshouldknowthisbut.

To be a trade (rather than a hobby) the activity must also, as Monsoon says, be a business; "conducted...on sound commercial principles" (see the Lord Fisher tests - a VAT case - reproduced in the binary numbered SVM111110).  A business person doesn't just keep flushing money down the toilet ad infinitum though in my view.

There is going to be love involved.  I'm not sure that a creative type can really be said to be trading until they actually have "made it".

But even if they can, there's still love involved, which means there will be duality of purpose for a lot of expenditure.

In the case of Prince v Mapp (see BIM37945), Harry Prince was a draughtsman by day and a professional guitarist by night.  He also played his guitar as a hobby.  He sustained an injury in his day job that meant he had to pay for corrective surgery in order to continue playing his guitar.  The court accepted that he wouldn't have had the surgery for any reason other than to allow him to play his guitar, but he played his guitar both as a profession and as a hobby, so the expenditure wasn't incurred wholly and exclusively for business purposes.

Imagine I'm a "self-employed" painter.  My paintings are mediocre bordering on absolute crépe, but nobody's had the heart to tell me, and I still believe I'm going to make it big one day.  Even if someone did tell me, I'd still go on painting.  Am I trading?  If I am, do I buy my paint and canvasses wholly and exclusively for the purposes of my business?

Claim all that you think is tenable, but when the repayment comes in, tell the client not to spend it for twenty years, or when he "makes it", whichever's the sooner.

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06th Dec 2012 13:23

for once I disagree with you Steve...

the fact that you enjoy something....and then happen to make money out of the same thing shouldn't preclude you from treating it in the same way as someone who doesn't enjoy it...and and for them is just a way of making a living. 

 

And I am sure you have come across more than the odd business that you look at and question whether it has been conducted on 'sound commercial principles'.  What happens if you happen to love accounting....but ain't good at selling your services.....but the next accountant hates what he does....and is in the same position.....should we question whether you are trading?....we should base it upon the facts/badges of trade etc....nowhere in their does it say anything about your level of enjoyment from said task....and nor should it.....

 

 

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By Monsoon
07th Dec 2012 12:39

Loving what you do

justsotax wrote:

the fact that you enjoy something....and then happen to make money out of the same thing shouldn't preclude you from treating it in the same way as someone who doesn't enjoy it...and and for them is just a way of making a living. 

 

And I am sure you have come across more than the odd business that you look at and question whether it has been conducted on 'sound commercial principles'.  What happens if you happen to love accounting....but ain't good at selling your services.....but the next accountant hates what he does....and is in the same position.....should we question whether you are trading?....we should base it upon the facts/badges of trade etc....nowhere in their does it say anything about your level of enjoyment from said task....and nor should it.....

 

Agreed. Sometimes I bloody love what I do. Doesn't give my purchase of a new calculator duality of purpose, even if I sometimes key in 58008 for fun sometimes. ;-)

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06th Dec 2012 13:46

Thankyou to everyone

It seems this is about as straight forward as I had imagined and has certainly split opinion even between a relatively small number of people, I will discuss with him this evening and see where we are after that, it seems it's not out of the question to set him up in this way (providing all of the ducks are in a row!) but this may also turn out to be more hassle than it's worth.

I must say, I also agree with justotax, I know more than a few people working away at busineses which not only make little to no money but which they do pretty much for the love of doing it, I wouldn't ever suggest (to them) it's not a business, although in my book, businesses should make money, some people are just happy doing what they do. The lucky ones love what they do and make money from it.

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06th Dec 2012 15:09

music music music

I have a number of clients who are in the music business ranging from the beginner to the full time pro, all class their studio time and recording time as part of the business, providing you can show that they are making music/records they can prove they are in business profitable or not.

Many in the music industry just produce records for promotional reasons as their is little return on music these days unless you are really lucky but all need records to promote live gigs. 

 

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By pawncob
07th Dec 2012 12:00

From experience

Just to round it off, I've gigged with a covers band for over 20 years. We recorded several albums, but never recovered the studio costs. They were made partly for promotional purposes and to sell at gigs.

I took a pragmatic view of the tax position. I never attempted to claim a loss and I never declared a profit.

 

 

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07th Dec 2012 12:57

58008

Girls do that too!?

5376616

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07th Dec 2012 13:58

musicians

 This is a perennial complication. I dealt with my first such client in 1966.

1) If the expenditure is "Wholly & exclusively" you may claim it.

The musician should register as self-employed. It is not all unusual for such persons to have a number of PAYE jobs, with some S.E. earnings in a tax year. (We are talking about the 95% who are jobbing entertainers, and subsist on love and nun-pence) I have one client who used to average three P60s every year

In many cases the S.E. is necessary in order to maintain a presence and or reputation for the PAYE jobs., or vice versa.

Watch out for problematical expenses such as "Stage" clothes. HMRC may argue that these may be used as normal wear. Teeth straightening and whiting, is another one to watch.

In particular keep a travel / car log.

 

 

 

 

 

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07th Dec 2012 16:34

wouldnt it be good if.....

and another link SImon Bates

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08th Dec 2012 11:50

Very interesting reading - all of it

I think my conclusion is yes he should be self employed but I will stress to not take every expense literally and whack it on the return, I think an independant view on expenditure will be useful for him as I know that sometimes creativity and artistic licence can seep in to less forgiving areas.

and David Gordon thanks for mentioning the P60's - when presented with several this week during a meeting - I feel happier now that this is a more normal situation for people in the industry!

 

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