There’s only two certainties in life – death and taxes. Now that you’re earning from your music, we recommend learning a few bits and pieces to get the most out of your path.
You are taxed on your net profit (gross minus expenses), however you are able to write off certain amounts of that as long as you can attribute it to your work. Maintaining yourself as a musician is tough, so here are some examples of what you can write off.
Overview
You are paid a gross income when you work self employed. For every year’s gross income, you need to pay tax for anything over £12,570, at approximately 20% (unless you earn over £50,570, where you will be taxed more). YOU MUST DECLARE YOUR INCOME IF YOU EARN OVER £1000 A YEAR.
If you earned £30,000 and had no deductible expenses, you’d be taxed on £17,430 (your income above the £12,570 allowance), paying around £3,486 in Income Tax, plus potentially Class 2 and Class 4 National Insurance contributions.
However, you can reduce that amount by deducting expenses, which reduce from the gross amount (£30,000) to a more digestible figure.
Food
You are entitled to a meal at reasonable expense when you perform. This doesn’t mean you can go around fine dining, however a sandwich or cooked meal is considered reasonable by UK tax law.
While there are no clear boundaries for meals, declaring too much could result in an audit, where the taxman will look at your expenses and reduce them accordingly. Extortionate amounts may even result in a penalty.
Technically, you entitled to a meal with a significant journey and if you stay overnight, however there are certain amounts you can claim. As a guide, you should aim for 5-10% of the performance fee as reasonable.
Travel
As musician’s often travel to different place to work, you can claim any cost for travel back from tax.
Here are some examples:
- Petrol – if you drive, you can claim £0.45 per mile for the journey (or £0.25 over 10k miles)
- Train tickets
- Air fares
- Accommodation
All must be applicable to your work – this mostly means your shows, but also any important meetings with clients or colleagues (for example, rehearsals).
Business costs
Anything that attributes to your business can be written off, including:
- Equipment (mics, instruments, laptop)
- Stationary
- Softwares (CRM, website subscription)
- Marketing costs (showreels, photography)
- Utilities (Wifi, phone bill, etc. NOT electricity or living costs)
If you are calling clients, you can attribute your phone bill to your business. This is how the game works, so use it to your advantage!
Pension contributions
Statistically, 80% of musicians retire in their 80’s (and not by choice).
Now that you’re self employed, you will not have a pension benefit from your employer. You may feel you’re earning more than you ever have, but you should be putting money into a private pension scheme.
The good news is, it is tax deductible and the government also contribute on your behalf.
At this stage, it is important to note that THIS IS NOT QUALIFIED FINANCIAL ADVICE and you should seek advice from a professional when choosing a pension.
However, anything you do contribute will come off your tax bill at the end of the year. This means you are paying yourself instead of tax. It also means you will have a healthy income by the time you retire. It is extremely beneficial to do so.
It’s also important to note that it is taxable at the point of withdrawal, however it is a tiny amount in comparison to what you would be taxed on when you earn. This is a topic for another day, but we recommend you speak with colleagues or professionals if you need to get your head around it!
Key Takeaways:
- Record your income and expenses per month
- Get an accountant
- Learn about the tax system
Following those three points will allow you to retain the maximum amount from your pay and provide a reasonable living as a musician!
Summary
Managing expenses is a key part of how you maintain yourself as a musician. There is a reason you are able to to do it and your peers are not!
Look out for future articles on how to live your dream as a musician, and sign up to our newsletter to keep updated!