Artists and other self-employed arts professionals are missing out by failing to take advantage of the tax rules designed to leave more money in their pockets. Alistair Bambridge explores the possibilities.
CC0 Public Domain
Ever since the tax sheltering arrangements of a number of multinational corporations have been in the headlines, the whole topic of tax avoidance has become a source of exasperation for the public and vexation for government. While these companies may be, in technical accounting and taxation terms, obeying the letter of the law, their off-shoring activities have in the eyes of many stepped so far away from the spirit of the law as to be wholly unethical.
If you can clearly show how the activity or purchase furthers your ability to do your job, it can be claimed upon
In tax terms, the spirit of the law is important. Tax relief – such as that now enjoyed in the creative sector by orchestras, theatre companies, and soon galleries and museums – is designed to support businesses and help them to thrive. It is the government’s way of providing a positive incentive to embark on projects and initiatives that might otherwise be thought unaffordable.
The same is true of the tax rules that apply to freelance artists, actors and other arts professionals. The rules recognise that they are important contributors to the nation, and that they shouldn’t be penalised by having to dip into their own pockets to cover the costs of their work – costs that would, were they employed, be picked up by their employer. They are entitled, and encouraged, to claim the widest possible range of expenses, to ensure that they have the best possible chance of thriving through their work. It’s in everyone’s interest.
Dreaded tax returns
When someone commits to being an artist, actor, musician, freelance or any other self-employed professional in the creative industry, they are also committing to keeping proper accounting records. The records are then analysed to make up a tax return. These documents must be fit for HMRC inspection at all times, and therefore always kept up to date.
Yet every day we have clients who come to us confused about their expenses. It seems that, for self-employed professionals in the cultural and creative industries, the topic of expenses is seen as extremely complex and consequently fills them with dread. The rule-filled world of accounting and HMRC seems to naturally conflict with the temperament of most creative professionals. Consequently, many avoid the area completely and will be left with nothing but panic in the run-up to the next tax return deadline on 31st January 2017. Sounds familiar?
The law states that expenses are only tax deductible when ‘wholly and exclusively incurred in the performance of the business.’ However, the reality of claiming expenses can be a lot more intricate than it first appears.
Many creative freelances in the performing arts, for example, can claim clothing and other materials that would be regarded as items they have purchased solely for their profession. These must be used for the production they are working in and they must have paid for them themselves.
Any equipment purchased due to ‘sole trade’ can qualify as a capital allowance, but this is only the case for creative professionals who have no other trade and only accounts for material worth £100 and above. So a photographer looking to claim the expenses of a £16 USB drive, for example, could not claim under ‘Equipment’, but this would be deductible under expenses for ‘Office costs.’
Claiming for training
Another activity key to all jobs within the creative industries is growing your knowledge by staying on top of the latest news and inventions in your field. Therefore, charges that involve training for your job role are also deductible, as long as the training is for a skill that you already possess and helps you improve that skill for your self-employed job. A photographer who is only experienced in still-life shots, for example, could not claim a training course in video images on their tax return.
Costs incurred through research that contributes to your job role are also claimable. For a self-employed actor, this claimable expense may be going to the cinema or buying a book. If you can clearly show how the activity or purchase furthers your ability to do your job, it can be claimed upon.
Home and away
Anyone working on a job far away from home that requires both temporary accommodation and travel can claim both accommodation and travel expenses incurred directly from the job. As long as the temporary accommodation is far away from your home address and the travel is solely job-related it can be claimed upon. But in terms of travel cards, only part can be regarded as tax deductible due to the part-personal nature of their use.
On work-related trips over five miles from your home address you may incur costs due to subsistence. These expenses are also claimable as long as the cost is due to your self-employed role and you are unable to make any food.
Some creative professionals face extra expenses as a result of working within their own homes. It is then possible to claim part of their ‘home expenses’, provided that a specific area of the home is used for self-employment purposes. These purposes can include rehearsing, and even looking for freelance work. This expense must be apportioned as home expenses are regarded as at least semi-personal.
The same is true of mobile and home phone usage. If you use your phone for self-employment purposes, your mobile phone bill can be apportioned on your tax return.
This is just a snapshot of potential expenses that can be widely claimed, but there are others that are specific to different types of work. For example, an actor whose work requires them to look a certain way may be able to claim some dental, gym, and health and beauty costs.
Such is the complexity of the rules that artists and other self-employed professionals in the sector can miss out on claimable expenses if they choose not to take professional advice. That’s a wasted opportunity – and it could be a costly one.
Alistair Bambridge is a partner at Bambridge Accountants, a specialist in accounting for creative industry professionals.
This article, sponsored and contributed by Bambridge Accountants, is the first in a series helping arts organisations and arts professionals to make the most of their finances.