George Gretton
“What is an allowable expense?” plus other top FAQs answered 👇
If you’re a Self-Employed Musician, Group or DJ, you’ll probably know that the 31st January each year marks your deadline for your Online Tax Return, which always comes around more quickly than you think!
This means you need to declare all earnings and business expenses from the last tax year ending in April. HMRC will then automatically calculate how much tax you owe (or are owed) and the difference will need to be settled.
Musicians aren’t accountants. This stuff can be seriously confusing. But it’s really important to get it right – there can be benefits! As with anything relating to tax, please do consult your accountant, as nothing in this article should be used as tax advice.
Contents
- What is your Tax “Self-Assessment”?
- How do I submit my Self-Assessment?
- What will I need for my Self-Assessment?
- What is an “allowable expense”?
- Is the Encore Service Fee an allowable expense? How do I include it in my tax return?
- How accurate do the amounts in my Tax Return need to be?
- What’s the difference between claiming back expenses in my self-assessment and claiming back VAT?
- I want to know more about VAT! Where can I get more information?
- Some handy resources
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 by January 31st.
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.
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? 🔎
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.
I want to know more about VAT! Where can I get more information?
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.
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
Jonny Venvell