Jazz Services

Financial Records

It’s important to set yourself up with a good financial record keeping system that you keep up to date. I always recommend that musicians have 2 bank accounts one for their personal income and expenditure and one for their business expenses and income. This way it keeps things clear and also helps you to see that you are a business, regardless of how small or large that income is. This is particularly important if you are getting into recording and selling a CD or receiving gig fees and paying out musicians as you need to be able to run a separate budget for these activities.

What are financial records?

  • Annual accounts
  • Income and expenditure records
  • Receipts and invoices
  • Annual Self assessment tax form
  • Bank records
  • Credit card records
  • VAT

Self employed or employed?

  • You can be employed in one job and self employed in another.
  • Inland Revenue Leaflet IR56 employed or self employed?
  • You can register as self employed by calling the Helpline for the Newly Self-Employed on 08459 15 45 15. www.inlandrevenue.gov.uk/startingup
  • When you are self-employed, you’re responsible for paying your own tax and National Insurance contributions. Keeping full and accurate records from the start will make it easier to work these out. Broadly speaking, after your first year in business, the tax you have to pay will be based on your profits for the previous tax year.

National Insurance contributions

Most self-employed people pay two classes of National Insurance contributions. Class 2, paid at a weekly flat rate currently £2.00 a week, which count towards Incapacity Benefit, state retirement pension and Bereavement Benefit. Class 4, paid on profits and gains at or above a set level. If your profits are over a certain amount, you may have to pay Class 4 contributions as well as Class 2. You will normally be asked to calculate your Class 4 contributions when you fill in your tax return.

Exempt and special groups Some people are exempt from Class 2 contributions. These include anyone with a Small Earnings Exception certificate.

Tax year

A tax year runs from 5 April to 6 April. If you return your self assessment form by 30 September the tax office will work out your tax bill. After the first year the tax office will ask you to make some payments on account for the next year’s profits. These are based on the previous year’s accounts and you can ask them to be reduced. You need to register within 3 months of finishing college.

Should you register for VAT?

You will probably have to register for and charge VAT if your taxable turnover reaches - or is likely to reach - a set limit (over £55,000 in 2002), you have taken over a business as a going concern, or you acquire goods from other European Union countries. For more information call the C&E National Advice Service (0845 010 9000).

Voluntary VAT registration

Why would I want to register for VAT if my taxable turnover is below the threshold? If your taxable turnover is below the registration threshold you can apply for ‘voluntary registration’, if you can prove that what you do is a business for VAT purposes. There are advantages and disadvantages to registering voluntarily. Benefits include increased credibility for your business and, if your business makes standard or zero-rated supplies, you’ll be able to claim back input tax.

Record keeping

If you don’t keep proper records, you may not be able to prove your income and expenses. By keeping proper records, you’ll be able to check that everything’s in order. Support Teams at the IR can help you to understand what records to keep.

Why do I have to keep records? The law says that everyone who pays tax must keep the records they need to fill in a tax return. By law, you must keep all your records for at least five years from the latest date for sending back your tax return, but it’s up to you to decide how you keep them.

Set up a system

It doesn’t matter whether you use a special account book or a software package as long as you set up some kind of system to keep the information together. If you use a computer remember that you must still keep the original receipts. Keep records throughout the year Keeping only some of your records is almost as bad as keeping none at all. Update your records regularly, rather than letting the paperwork pile up.  Keep your records for as long as required You must keep all records for at least five years from the latest date for sending back your tax return.

Record books

The sort of records you keep will depend on your business. However, the minimum requirement for most types of business will be a cash book (a summary and analysis of all bank account entries,cash receipts,payments and drawings) and a petty cash book (or some other simple record of your petty cash transactions).

Personal finance

If you don’t have a separate business account, you must keep clear records of what is personal or to do with your business. You’ll also need to keep a record of any private money you bring into the business, and where it came from (e.g. a legacy, a loan)

Expenses

The Taxes act states that as a self employed individual you are entitled to claim for expenses incurred “wholly and exclusively for the purpose of trade”. Watch out for ‘duality’ clothes can fall into this category.

Expense categories 1

  • Motoring expenses
  • Stage clothes
  • Footwear
  • Overnight accomodation
  • Travel
  • Stationary
  • Telephone calls
  • Telephone rental charge
  • Instrument insurance
  • Instrument repairs
  • Cleaning materials for instruments
  • Instrument replacements (may be in capital allowance)

Expenses categories 2

  • Laundry and dry cleaning
  • Music
  • Theatre tickets
  • Advertising
  • Publicity material
  • Hire of - rehearsal rooms, recording studios. Musical instruments
  • Car parking
  • Commissions - paid to agents, managers
  • Accountancy fees
    •  

Expenses categories 3

  • Solicitors fees
  • Bad or doubtful debts
  • Subscriptions ie Music Week
  • Bank charges
  • Interest charge on loads eg for the purchase of equipment
  • Small consumable items
  • Contact lenses
  • Some dental work
  • Gifts advertising your services - the cost of each must not exceed £50

Expenses categories 4

  • CD/Cassette/DVD/MP3 players and discs - to learn new music
  • Professional subscriptions
  • Other inexpensive items of equipoment ie music stands

Remember - sometimes you have to argue the business use - but don’t be frightened to argue just be realistic.

Tricky expenses

  • Use of your home as an office - if part of your home’s use is solely for business purposes then you can claim a proportion of the running costs of your home.
  • Wages - if its more than on a casual basis you can become liable for PAYE unless its your spouse.
  • MU subscriptions - they are allowable - if the tax man argues the point consult the MU

Capital allowances

  • “writing down allowances”
  • Vehicles - 25% each year of the value ie £4,000 car. first year its £1,000, second year its £750 (value is £3,000 and so on)
  • Instruments, computers and expensive items of equipment 50% for the first year and then 25% for the following years as above.