In a recent survey conducted by Encore Musicians of 300 musicians, it was revealed that 91% of our musicians are registered as self-employed or freelance, however, nearly a quarter of musicians (24%) expressed a lack of confidence when completing their tax returns. Highlighting the need for extra help, Encore Musicians has created a comprehensive list of commonly asked questions about tax returns for musicians.
The guide aims to address the challenges faced by musicians who may not be confused by the jargon, or the process or not fully aware of all the potential deductions available to them. Nevertheless, like all financial matters, there’s no universal advice that applies to everyone and you should always consult with an accountant for tailored advice to guarantee compliance.
How often should I review my music-related income?
Our research shows that 9% of musicians never check their financial statements for earnings related to their music, while 26% only do so annually.
It’s recommended that you aim to review your financial records on a weekly or monthly basis to stay on top of receipts and invoices and ensure nothing slips through the cracks. Although it may seem burdensome initially, it will save you considerable time during tax return season and reduce the stress of trying to find everything last minute.
However, the frequency of these reviews will also depend on the number of performances you have. If you only have a few gigs a year, an annual review should suffice.
What is your Tax “Self-Assessment”?
In the UK, if you’re a self-employed Musician, once a year you’ll need to settle your taxes with HMRC in a process called Self-Assessment.
This includes:
- Completing your tax return and detailing your taxable income and expenses.
- Paying the calculated tax and filing the tax return by 31st January.
How do I submit my Self-Assessment?
Your tax return needs to be submitted through the HMRC online portal and paid by 31st January. There is no fee for filing through the official HMRC website, so avoid unofficial sites that charge you.
You’ll be taken through a number of questions about your income and expenses before it shows you your tax calculation. Finally, you’ll have the option to submit your return and pay your tax.
Need to dash in the middle of your tax return? Don’t worry, you can save your return at any point and return to it.
What will I need for my Self-Assessment?
You’ll want to dig out your financial records for the period 6th April 2021 to 5th April 2022, plus your Unique Taxpayer Reference (UTR), National Insurance number, records of expenses, contributions to charity or pensions, and any records showing income you’ve already paid tax on (part-time work pay-slips etc).
If you’re submitting the Encore Service Fee as an expense, you can gather invoices from your Payment Dashboard (desktop only).
What is an “allowable expense”?
If you’re self-employed or part of a company, you can include “allowable expenses” in tax returns.
Allowable expenses are essential business costs that are not taxable. Allowable expenses aren’t considered part of a company’s taxable profits, so you don’t pay tax on these expenses. These are expenses that were incurred exclusively and wholly in running your business.
For example, a musician has earned £15,000 for gigs this tax year. They spend £3,000 on allowable expenses like travel, accommodation when staying away for gigs and the Encore Service Fee. They only pay tax on the remaining £12,000.
Most small businesses can claim tax relief on allowable expenses, but there are exceptions. If a company benefits from the £1,000 tax-free ‘trading allowance’, they can’t claim additional allowable expenses. Also, limited companies have specific rules for allowable expenses.
Check out this guide to Claiming Expenses as a Freelance Musician from the Musicians’ Union.
What types of purchases count as an ‘allowable expense’?
Among the key challenges regarding musician tax returns highlighted in our survey, half of our musicians (48%) identified expenses as the biggest hurdle when completing their tax returns, with deductions following closely at 29%. In response to these findings, Encore has compiled a detailed list of top unexpected allowable expenses to empower musicians in claiming what they might not be aware of.
Below are some of the top allowable expenses that you might not be aware of:
- Repairs and maintenance of instruments and equipment: Expenses including replacing strings, fixing broken drumsticks, tuning pianos, software upgrades, etc. may be eligible.
- Music software and subscriptions: Scores, notation software, and even online training platforms related to your performance skills are fair game.
- Instrument cases and stands: Sturdy cases and stands protect your valuable instruments and are considered business expenses.
- Streaming equipment: Webcams, microphones, and lighting setups used for online performances or streaming music lessons can be claimed.
- Home studio equipment: Soundproofing materials, mixing desks, microphones, and even studio furniture for dedicated workspaces are potentially deductible.
- Learning and development: Workshops, masterclasses, and even specialised courses related to your musical or performance skills are deductible.
- Instrument insurance: Protecting your musical tools is crucial, and insurance premiums are often allowed as business expenses.
- Phone and internet bills: If you use your phone and internet primarily for work-related communication and promotions, a portion of the bills might be deductible.
- Subscription boxes and online tools: Services like sheet music delivery subscriptions, online booking platforms, or music marketing tools can qualify under certain circumstances.
- Wigs and accessories: For actors, pantomime dames, and anyone with outlandish stage personas, wigs, costumes, and special accessories can be claimed if they’re solely for professional use.
- Hairdressing and makeup: Theatrical make-up, wigs, and even specific hairstyles for gigs or productions are deductible.
- Mileage and travel: Car expenses, public transport fares, and even bike mileage for gigs and rehearsals are all claimable.
- Musician earplugs and hearing protection: Maintaining hearing health is crucial and considered deductible.
- Professional development memberships: Joining organisations like PRS for Music or Musicians’ Union.
- Professional photography and videography: Creating promotional materials for your music career.
This list is not exhaustive and which of these expenses are tax-deductible will be down to your specific circumstances and whether you are self-employed, employed or both. Please speak to an accountant or financial professional to ensure compliance.
Is the Encore Service Fee an allowable expense? How do I include it in my tax return?
Yes! 🎉
The Encore Service Fee is an allowable expense, because it is incurred wholly and exclusively in running your business.
To work out how much you spent on Encore Service Fees in the tax year, head to your Payment Dashboard (here) on a desktop and find the bookings that were booked (not performed) during that period. On them, you’ll see ‘Service Fee Invoice’. Click that to see how much you spent, which you can add to the total expenses claimed in your Self-Assessment.
How accurate do the amounts in my Tax Return need to be?
Very.
HMRC will initially check for obvious errors, but they also do a lot of random enquiries (investigations) each year. If they make a further enquiry with you, the inspector won’t tell you whether yours is random or an investigation.
If you get selected for an enquiry, you’ll need to provide extensive evidence and documentation, as well as answer a lot of questions about your expenses. Make sure they check out. If your return isn’t calculated correctly, you’ll get hit with some hefty penalties or interest on your payments.
Keeping all your payment records in one place will make the process so much quicker and easier every year.
Check out the Musicians’ Union’s advice on Tax Return Enquiries here.
What’s the difference between claiming back expenses in my self-assessment and claiming back VAT?
VAT is a separate tax (with its own separate rules) to the tax you pay through self-assessment.
When you’re running a business through self-employment, you must always ensure you’re paying your income tax and any national insurance due through self-assessment.
How much income tax you pay through self-assessment depends on how much you’ve earned and how much goes through allowable business expenses during the tax year (such as the Encore Service Fee).
If you’re turning over less than £85,000 a year, you also do not have to register for VAT, unless you choose to do so.
If you are VAT registered, you can claim back VAT on business costs, but you must also charge VAT to all your clients. The difference between what you collect and pay in VAT should either be paid to or reclaimed from HMRC, usually every 3 months.
Where can I find out more about VAT?
Check out our guide to VAT registration here, and HMRC’s website is always a great place for up to date information.
Check out the government’s article on claiming back self-employed expenses here and their article on reclaiming VAT here.
It’s important to remember:
- Only claim legitimate and reasonable business expenses directly related to your music career.
- Keep all receipts, invoices, and bank statements as proof of your claims.
- Consider seeking professional advice from an accountant or tax advisor familiar with your industry’s taxation to maximise your claims and ensure compliance.
- The specific items you can claim may differ depending on whether you are employed or self-employed or both. Consult HMRC’s guidance for detailed information.
- Tax laws change, so keep informed and adjust your deductions accordingly.
- Submit your tax return by 31st January to avoid any penalties! Even if you miss the deadline by one day, you will be required to pay a £100 fine.
Some handy resources
Here is a list of recommended articles around Tax Returns, Being a Self-Employed Musician and VAT:
- Encore – VAT: What’s The Deal?
An article on the pros and cons of being a VAT-registered Musician on Encore - The Musicians’ Union – Tax Advice and Guidance
The MU’s Advice Centre for self-employed Musicians - GOV.UK – Charge, reclaim and record VAT
The Government’s official help centre for VAT-registered businesses - HMRC – Self-Assessment Help Videos
A library of videos from HMRC to walk you through the self-assessment process