When To Go Legit?

[Billy Rigby]

I started gigging as a solo singer about twelve months ago and just wondered when would be the best time to go legit, declare earnings to the tax man etc? I don't want to get stung and I don't want to get greedy with the money I'm making.

 

When I started out, gigs were occasional but word is starting to get around and I'm getting more work to the point where I'm averaging two gigs a month (I want to get to the point where I'm playing twice a week or more but I appreciate that these things can take time). Just wondered if anyone had any sage advise on this topic?

 

Many thanks.

[PDD]

I would imagine that you should already be declaring your income, although you don't say if this is your sole income or not, however I'm fairly sure it's the law to declare any and all income. So, saying that you don't on a public forum may not be the best plan in the world really. Tax can be applied retrospectively.

 

Talk to an accountant.

[Billy Rigby]

I would imagine that you should already be declaring your income, although you don't say if this is your sole income or not, however I'm fairly sure it's the law to declare any and all income. So, saying that you don't on a public forum may not be the best plan in the world really. Tax can be applied retrospectively.

 

Talk to an accountant.

 

 

Umm. "Fairly sure" eh? I know bands who work more than me who've approached the tax man and been told to "go away". But you're right, I should take this query beyond the forum and speak to a few more people.

 

Ta for the advice.

[PDD]

Umm. "Fairly sure" eh?

Ok, make that definitely. (I don't pretend to understand tax!!)

Who needs to complete a tax return?

- people who have other untaxed income and the tax due on it cannot be collected though a PAYE tax code

[djw1981]

You can always contact a CAB for advice, or IIRC HMRC information liens will help you without you having to give name address or NI number.

[Jivemaster]

Income always has expenditure start checking now.

[paulears]

Always worth remembering that any business who pay you, will almost certainly mention you in their accounts, even if they pay you in cash - and you must remember that with HMRC, you are guilty till you prove yourself innocent - so saying you only did X amount of gigs may well not be believed. They could say we estimate you did twenty gigs last year, and owe them £2000. You have to prove they are wrong!

 

As somebody who has been inspected by them, taking nearly a year to complete with a four figure accountancy invoice for the work needed to convince them, I strongly urge you to declare it quickly, because if they investigate you and you have not declared any income - you are in big trouble.

[Bobbsy]

What Paul said. Getting your self "legit" now will prevent a load of hassle and expense later.

 

However, don't assume that, just because you start declaring income you'll have a big tax bill. Once you're legit you can start offsetting lots of your expenses against income: PA system purchase/hire, transport and even that 2AM coffee at the motorway services are likely deductible. However, knowing what you can and can't claim is where you need the advice of an accountant--and accountants are almost always cheaper when setting something up for you initially rather than trying to pick up the pieces later.

 

Bob

[w/robe]

Talk to an accountant.

...but be careful what you say. If you tell him you have been doing something illegal he should tell the authorities, don't put him in that position.

[Guest lightnix]

...any business who pay you, will almost certainly mention you in their accounts, even if they pay you in cash - and you must remember that with HMRC, you are guilty till you prove yourself innocent...

True, but (unless something's changed) it'll still be their responsibility to ensure that any taxation is correctly applied. If they don't and HMRC catch up with them, then the money paid will be regarded as the net pay, on which Income Tax, NI and Employer's NI are still due.

 

As mentioned, any untaxed income can / should be declared on your Tax Return. Don't forget to keep records and receipts for any legitimate expenses incurred in the pursuit of your singing career, as you should be able to deduct these from the gross income and be taxed on just the nett remainder. "Legitimate" expenses will include things like transport to and from the gig; the purchase and cleaning of your stage attire (e.g. dinner jacket, posh shoes); business cards, flyers and the cost of posting them; etc. They could also include things like sheet music; CDs, DVDs and the equipment you play them on; singing lessons / vocal coaching; a musical instrument or two and a microphone; manuscript paper; computer expenses, including software (e.g. Sibelius), ink cartridges, blank discs and paper. If you ever do a gig outside the UK, you can claim just about everything you eat / drink or travel in as subsistence.

 

If you're going truly legit, you'd best engage the services of an accountant. They will get you registered as self-employed and arrange a UTR number for you. They'll also be able to advise you on just what you can claim and prepare accounts for you, which are far less likely to be queried by the HMRC than any you prepare yourself. Expect to pay £450-600 a year for these services; it may sound a lot, but they're worth their weight in gold (even at current prices), as I'm sure many people will testify.

 

Have a look through the business directory for accountants, 'phone around and ask them if they'd be prepared to give you a free half hour, perhaps over a pint, to tell you what they can do for you and what they would need you to do. Alternatively, my accountant is based in Wembley, has a fair few "showbiz types" of one kind or another on his books and a good understanding of the business. Drop me a PM if you'd like his contact details.

 

 

e2a...

Talk to an accountant.

...but be careful what you say. If you tell him you have been doing something illegal he should tell the authorities, don't put him in that position.

It's funny, how many accountants have become afflicted by strange, intermittent hearing problems; which render them suddenly deaf for a few seconds and defy all attempts at medical diagnosis

 

You're right, w/robe - but the laws on tax fraud were originally intended to catch serious money launderers, like drug barons; rather than otherwise law-abiding citizens, who have made an honest mistake. Any half-decent accountant will understand that and advise you on how to proceed in the future. It's unlikely that you'll ever be the subject of a full, In Depth Investigation by the HMRC; although you may very occasionally get a random Aspect Enquiry into one part of your accounts (travel expenses are a favourite target), which could cost extra accountancy fees. Insurance policies are available to deal with such costs, should they arise.

[paulears]

The nice lady from HMRC was quite happy to explain that since self-assessment is now running fairly smoothly, they have switched the emphasis to selecting people and digging. My own problem was that my accountant was just about to retire, and had forgotten a few things - so he'd claimed some private car expenses, and didn't notice the very same jobs were in the van section. Mrs HMRC asked about something, he said "we've charged a proportion of the car...." I said "what car?" So in all innocence I'd claimed twice - it made just over a thousand pounds difference, which I had to repay. HMRC do not mind mistakes being made as long as they are put right. They do however, have the right to ask about not just your business, but your wife's accounts and even about gifts made to my grown up kids from my wife's father.

 

The info about telling the truth to accountants is spot on. In fact, they are now likely to blacklist you if you don't - so even if you leave on accountants practice, another chartered practice will not take you on, leaving you with only one-man band type accountants as a choice and HMRC are damn good at knowing which accountants firms are better than others.

 

The days of dodgy dealing are over - it's far too worrying for me. The stress of my problem last year was quite intense - and I was sure I'd done nothing wrong at all.

 

A decent accountant will easily save you what they charge, certainly for the first few years - but be aware, our industry is quite odd, and some of our historic, and HMRC accepted practices are rather unusual. Don't expect too much advice - my experience is that you do what you thing is best and they sort it out afterwards, They find it very difficult getting their head around how we get paid, and what for!

[Billy Rigby]

Thank you all so much. This is really encouraging advice and I'll definitely follow it up.

 

The goal when I initially set out on this curious career was to go legit and not have it as a little earner on the side. I'm not greedy, I just want to earn a living doing something I genuinely love, so there was never any question of not going to the tax man when the time came.

 

I have kept records of everything I've spent (with the exception of travel and cleaning bills - silly me!) but what I'm wondering now is, how long are those invoices good for? I bought all my gear a year ago, so can that expense still be offset against money I earn now?

 

There's a local initiative that is supported by the JobCentre that gives advice to people thinking of setting up as s/e business so I'm going to see them. I believe there's a grant involved too.

[Guest lightnix]

The nice lady from HMRC was quite happy to explain that since self-assessment is now running fairly smoothly, they have switched the emphasis to selecting people and digging...

Thanks Paul - that's useful to know. IIRC they used to hit the employers, because it gave them the opportunity to sweep up more than one person at a time.

 

The days of dodgy dealing are over...

For most people, yes. The HMRC's powers of search and investigation are practically unlimited these days - they can look into any aspect of your finances they choose.

 

My accountant told me (without naming names) about one chap, who declared (among other things) that he spent just £50 per week on his family shopping. The HMRC didn't believe him and (using their powers of investigation) pulled his supermarket credit card records... which duly revealed his weekly shopping bill to be closer to £200.

 

What was the source of the other £150 per week? An investigation was mounted to find out.

[paulears]

Some questions can be quite difficult to answer (and if you bank with Barclays, quite expensive too) - as in:

 

On May 12th 2005 you paid in £297.58 to Barclays a/c 12345678. What was this for? Much searching, duplicate bank statements etc produced the answer that it was to pay for three separate items that were in the accounts, but in different months of purchase. Great, they said...... moving to the next.

 

I too got asked how much I spent on food each week, how much my mortgage was, and how much I paid for having my drive brickweaved. I honestly replied I hadn't a clue - to which she said "that's OK - I have it here"!

 

It is also worth noting that any accountancy fees due for preparing the paperwork for these kind of checks are NOT offsetable against tax - as they have been generated as a response to the tax people's enquiry. Ouch!

[zonino]

Paul, you can request all the information the bank holds about you (including copies of statements) for a mere £10 under the Data Protection Act, useful to know in the future