To embark upon the road of working for yourself can cause confusion when you reach certain directions.
The most difficult decision to make is often “do I become a private limited company” or “trade as a sole trader.”
A Company will offer you protection against going personally bankrupt providing the company is operated in a correct and compliant manner.
Tax on company profits are 20% and only increase further when profits of £300,000 are attained. This means as a shareholder in your company you can extract up to £31865 as dividends, the company having already having met a 20% tax liability. No problem. You can also use your personal allowance of £10.000 before tax on salary is due. However, you do have NHI Class 1 to pay.
Alternatively you can trade as a sole trader (often called a one man band!) Your liability is unlimited if the business goes under. A personal allowance of £10,000 is allowed by HMRC before tax is payable at 20% to £31866 then 40% to £150,000, thereafter 45%. NHI is self-employed Class 2 at £2.75 per week. However, beware – self employed get caught –there is a further charge of 9% on profits exceeding £7956 to £41865. Thereafter 2% with no cap.
Income (gross) which reaches £81,000 in any one year must register for VAT. A charge of 20% must be added to your invoices and the total of all 20%’s collected must be paid over to HMRC every 13 weeks.
VAT charged on bills to you, e.g. Petrol, Stationary, Services etc at 20% can be “set off” against your remittance quarterly being remitted to Customs & Excise.
Strict records of VAT returns must be kept, as indeed all accounting records, registered for VAT or not must be monitored rigorously.
Some entertainers are uncomfortable trading upon their own – others are uncertain about limited company status.
Another alternative is a “partnership”. This is a venture entered into with no less than two individuals. Usually on a 50/50 profit/loss sharing basis.
Frequently an entertainer may have a partner in their business who is also their wife or husband. Very tax efficient.
Record keeping of transactions whichever route you follow is very important.
HMRC are presently carrying out checks on peoples records of businesses transactions and failure to keep “compliant” records can result in heavy non appealable fines.
Additionally, investigations/enquiries can be conducted by HMRC into your tax returns and accounts and if unacceptable penalties and interest on tax found as undeclared can be very costly.
Entertainment professional attract numerous tax expenditure which other trades do not find allowable.
Those who “tread the boards” are able to claim costume, make up, appearance and hair dressing to name just a few expenses.
Travel, (all methods) are claimable even taxis getting from venue to venue, less any private usage.
Camera works, photographs, portraits are also items that are claimable.
Always remember, sole traders, partners, company owners should always seek to find established accountants/tax advisers who specialise in the entertainment profession.
Written by Brian Foster