band finance and tax, exciting huh??!

[BassInMyFace]

hi folks, i know its dull but have found very little info online about how to properly manage band finances. wonder if anyone can help?? any recommendations of generic sites/books (uk tax only, too much US based info out there) would be great but if u fancy chipping in with specifics see below;

i am treasurer for my band and keep detailed accounts of income and expenditure. we are doing pretty well at the mo so at month end i balance the books, cover all expenses/petrol etc and then split profits 40% to kitty and divide remaining between all 6 members. all expenses are itemised and i am getting better at keeping receipts.

most of us work full time (PAYE at normal jobs) so i assume we will need to declare our band earnings at year end as self employed income right? does the "band" also have to pay tax on the profits left in kitty? (i believe VAT kicks in when you turn over around £60k right?)

at present we are being slack and havent created band as business entity yet, looking into becoming a "co-op". As it stands, i have a separate personal account that all funds go through. realise this needs to change asap.

any suggestions on what best arrangements are for tax? should we avoid paying monthly salaries and let band do it all at year end? just how badly could things go wrong if we carry on being lazy and not sorting it??!!


sorry, its pretty dull i know but you know what they say about death and taxes right??

[SpaceChick]

I know many people look at themselves as part self employed individuals, so look at themselves with their share, rather than the band as a whole.

I contacted the Inland Revenue, and they are only interested if you make more than you spend... By the time you take into account rehearsal fees, fuel, car wear and tear, equipment etc I haven still in a big deficit... But I can imagine if you are in a successful band that could be different.

Would be interested to hear what people think when you look at the band as a business as opposed to your role in the band.

[JamesBass]

If you treat the band as a business, then you need to be VERY careful with what you do book wise, make enough money EACH, and Mr Taxman may come looking for you, depends how you guys run it. Do you invoice the venues/promo companies? Are you signed? Do you aim to get signed etc?

The way I've been taught to run anything music based, is to be STRICT, keep ALL receipts, update the books as soon as you can, day by day if you have 30 mins at the end of the day, you get caught not doing what you should be doing and HMRC will crash down on you! I'm so grateful that my HND Music Performance degree covers this stuff otherwise I'd be clueless! Treat the books as serious as possible. Expect that there will be several months where business will be down, it's the nature of the industry. Excel is your friend for this, keep it simple to read and under control, personally I only use formulae once I've finished the month. If you need any more help PM me and I'll see if I can shed some light, majority of things though are on the HMRC website and the Gov.uk ones

[JapanAxe]

Most bands are [i]de facto[/i] partnerships, making the members jointly and severally liable for the band's debts etc. It also means you can all be considered to have joint ownership of all the kit you use! However, you can draw up an agreement to make things less onerous on the individual members.

If you are in the Musicians' Union, check their advice on this. If you are not in the MU, it is worth joining for a number of reasons, including £10,000,000 public liability insurance and access to free legal advice.

[danthevan]

Can either set the band up as a business and make yourselves all partners, or have one of you as the business owner and put the rest of the band members down as subbies / labour.
It would probably be easier (paperwork wise) for one of you to be the business owner, and have the rest of the band as labour / sub contractors. I wouldn't go down the route of having them as employees as then you have to get involved with PAYE etc, although it would mean more work for whoever does the paperwork.
You need a receipt from each band member (with name and address and signed) when you pay them. It is down to them to register as self employed or not, as long as you get a signed receipt youre ok.
As long as none of you earn a fortune in your day job, you'll pay the standard 20% on whatever each of you earn, less expenses.
But, whoever the business owner is, will pay the 20% tax on every bit of profit. So if you charge £1000 per gig, give 3 band members £150 each, that leaves £550. Say there is £100 as 'expenses' , which leaves £450 then the business owner will be liable to pay 20% on the whole £450. Obviously if you done 10 gigs like this and had £4.5k in the pot, you could divvy it out between the band members (with a receipt from them obviously!) or buy a new PA to get round paying tax on it.
Also remember that spending £4k on a bass is allowed to be put down as a business expense. Cant work without your tools!
As for vat, you can register now if you like, it's just compulsory after £5x,000.

I think im rambling now, so back to the suarez thread......

[JapanAxe]

[quote name='danthevan' timestamp='1366576336' post='2054435']
Can either set the band up as a business and make yourselves all partners, or have one of you as the business owner and put the rest of the band members down as subbies / labour.
It would probably be easier (paperwork wise) for one of you to be the business owner, and have the rest of the band as labour / sub contractors.
[/quote]
Exactly what I do!

[flyfisher]

[quote name='danthevan' timestamp='1366576336' post='2054435']
As for vat, you can register now if you like, [b]it's just compulsory after £5x,000[/b].
[/quote]

£79,000
http://www.hmrc.gov.uk/vat/start/register/when-to-register.htm

[danthevan]

Is it that much now?! Was about £58 when i registred

[BassInMyFace]

thanks so much for all your input guys, really appreciate it considering how dull a subject it is!! welcome to basschat, lets talk tax.......

in my other life i work with finance so am comfortable with keeping accounts, have some pretty crazy spreadsheets that keep track of everything so happy with that side. could be better at keeping reciepts tho.....

picking up danthevans comments;

[quote name='danthevan' timestamp='1366576336' post='2054435']


But, whoever the business owner is, will pay the 20% tax on every bit of profit. So if you charge £1000 per gig, give 3 band members £150 each, that leaves £550. Say there is £100 as 'expenses' , which leaves £450 then the business owner will be liable to pay 20% on the whole £450. Obviously if you done 10 gigs like this and had £4.5k in the pot, you could divvy it out between the band members (with a receipt from them obviously!) or buy a new PA to get round paying tax on it.

[/quote]

its the 20% tax on the remaining profit that worries me. we do exactly what you describe, in fact 40% of all profits after expenses go into the kitty. is there a way to (a) pay zero or less than 20% tax on this? are there different business entities that pay less or something?
( how much of this "kitty" can you spend without it looking dodgy? ie say we end the year with £10k in the pot and smash it all on equipment at the end of march. does that look suspicious/tax evasive???

[Daphne]

Hello. I am an Accountant (and a bass player!) and always end up shouting at this sort of thread, so thought I'd actually sign up and say something constructive.

You don't give any indication of how much money you're talking about, so I'm going to make some assumptions. I gather a lot of amateur bands who are mainly playing for fun barely cover their expenses, and I doubt HMRC will come chasing you about the tax on £3.50 beer money, so I'm going to assume you're actually making a reasonable amount of dough. Here are a couple of simple examples - real life is invariably more complicated and I'm not a tax specialist.

In simple terms, any profit that's made (income less allowable expenses), [i]someone[/i] will pay tax on it. It doesn't matter whether or not someone takes that cash home. In the absence of any agreement to the contrary, you'd most likely be deemed to be trading as a partnership with equal shares. So you might have total takings of £12,000. Less expenses of £6,000. That's a profit of £6,000, split between 6 band members, so each band member has to pay tax on £1,000, at either 20% or 40% depending on how much you earn in your day job. You can then each take £600 out of the kitty and use some of it to pay your tax, leaving you with either £400 or £200 each in your back pocket and £2,400 in the fund. That money belongs to the band members.

If you did decide to set up some form of limited company, things get a heck of a lot more complicated. For legal and tax purposes the company is effectively a separate "person". So let's say you make £6,000 after expenses in a limited company, then as suggested above everybody invoices the company for £600. This time, the individual band members will pay tax at 20% or 40% on their £600, leaving you with £480 or £360 in your back pocket. The 6 lots of £600 are an expense to the company, so the company's profit is now £6,000 less 6 x £600, which is £2,400. The company will then pay Corporation Tax on that profit at 20%, leaving £1,920 in the fund. That money belongs to the company, not the band members.

Hope that's some help.

Edited April 25, 2013 by Daphne

[JapanAxe]

The trick is to spend all your money on kit.

[tonybassplayer]

If I remember correctly you can only depreciate things like guitars etc over a period of years so for example buying a guitar for £1000 would be depreciated over say five years therefore giving you £200 per year to set against tax.

[danthevan]

[quote name='tonybassplayer' timestamp='1366930825' post='2059285']
If I remember correctly you can only depreciate things like guitars etc over a period of years so for example buying a guitar for £1000 would be depreciated over say five years therefore giving you £200 per year to set against tax.
[/quote]

What if part of your stage act is to smash the £1000 guitar over the £3000 PA system?!

There is no way of 'avoiding' the tax (other than hoping you dont get caught), but there are loads of things you can offset against, or expenses you can put down.
There is nothing from stopping you using all your profit to buy new equipment. If you end up with £10k in the pot at the end of the year and you want to buy a van, so be it, but the van will be classed as a business asset, and if you're the one named as the sole trader, it's technically yours.
How much of the equipment you already have has already been put through the books as an expense?
If you were to tot up everything you have to run your business (as a band) how much would you have spent out?

I guess the way to do it (and our resident accountant will confirm / dismiss this but seems right in my head!) is one of you 'runs' the business and does all the financial side of things. Take the money, pay each of your subbies (band members) when they give you an invoice etc.
At the end of the year, if there is £10k in the pot, then you need to divvy this up between the band members. £2k each (including yourself).
Now each member has to pay tax on whatever they have earnt from the gigs (whatever you have been invoiced from them) + tax on the £2k end of year payout.
If you all decide that you want a new PA / van / something else, then they put in say £1k each, and you send them an invoice for this. They have a legitimate £1k invoice to put through their books, you all have an equal share in the equipment (otherwise the business (you) will own the entire piece of kit).
It's up to each of the band members to sort out their own accounts / declare their earnings etc. But also they can claim their own expenses.......... equipment that isn't owned by the band, travel, clothing, etc. As long as you get a bit of paper from them saying you paid them £x for their services, if they dont decide to declare it and get a tug from HMRC, you've done your bit.
I suppose what I'm getting at is try and see it as 5 different 'businesses' working together to provide the end product, otherwise whoever is in charge of the business will be liable for all the tax, and also have a lot of equipment on their books!
The only real problem I can see from doing it this way is if one of the band members decides to leave after putting in £x to buy new equipment, you'd have to buy out their share.

Makes sense in my head............ i think!

[PaulWarning]

wonder how many bands keep proper records? it's just a hobby for most of us, we have to deal with enough red tape in our normal jobs

[danthevan]

By the time I'd taken expenses out, there wouldn't be any profit in it!
Earnt £31 on the last gig. By the time you have purely fuel to get to rehearsals let alone the gig thats been gobbled up

[Dad3353]

[quote name='danthevan' timestamp='1366968109' post='2059521']What if part of your stage act is to smash the £1000 guitar over the £3000 PA system?!...[/quote]

If you're still making a profit doing this, you can afford to pay an accountant, I should think..!

[tonybassplayer]

Think there is a "capital asset" threshold so if its under it is a running expense that can be offset in the year ( strings fuel etc ) and above it then it has to depreciated over a few years as it is assumed, quite correctly, that the item will be in use over several years ( PA, Guitar etc )

[Guest bassman7755]

[quote name='danthevan' timestamp='1366970233' post='2059570']
By the time I'd taken expenses out, there wouldn't be any profit in it!
Earnt £31 on the last gig. By the time you have purely fuel to get to rehearsals let alone the gig thats been gobbled up
[/quote]

You can use the standard business milage rates to offset against profits i.e. 40p/mile for the first 10000 miles in a single year (and 25p/mile thereafter). If your using only fuel calculations then you might end up paying tax unnecessarily.

[Kinder]

I'm an accountant and tax adviser as well as a very mediocre bassist. The mileage rate is now 45p per mile for first 10,000 miles. The annual investment allowance (the threshold for writing off assets against tax in the year you buy them, rather than over a number of years) is now £250,000. If you're spending more than that on kit, I really want to come and see you play!!

I'd probably suggest you run it as an informal partnership, so each band member is self-employed. You should strictly register the partnership with HMRC and file a tax return for that each year, plus each partner's individual tax returns. I can't see HMRC getting upset if you instead draw up partnership accounts and then divvy up the profit between each partner, only filing the individuals' returns. As has been mentioned, most bands won't be making any cash after their kit and expenses so I wouldn't bother if you're never making profits. The tax man only gets upset if you're not declaring taxable profits.

Taking it to the other extreme, you can offset losses on your partnership earnings against other income. The losses would have to be pretty big to make it worthwhile though!

I might regret this, but if anyone's got any questions or it's causing them sleepless nights, drop me a pm and I'll help if I can.

Andy

[danthevan]

[quote name='Kinder' timestamp='1366984584' post='2059901']

I might regret this, but if anyone's got any questions or it's causing them sleepless nights, drop me a pm and I'll help if I can.

Andy
[/quote]

You will! Be in contact soon..........

[danthevan]

On second thoughts, maybe that aint the smiley I thought it was lol

[WalMan]

There have been long threads on this before. Do a bit of a search. I know I have put up long posts on this. before
[quote name='JapanAxe' timestamp='1366925121' post='2059209']The trick is to spend all your money on kit.[/quote] except when you sell it, or give up it comes back to bite. The proceeds (up to what you paid) come back in as income.

[quote name='tonybassplayer' timestamp='1366930825' post='2059285']If I remember correctly you can only depreciate things like guitars etc over a period of years so for example buying a guitar for £1000 would be depreciated over say five years therefore giving you £200 per year to set against tax.[/quote]
[quote name='tonybassplayer' timestamp='1366976642' post='2059716']Think there is a "capital asset" threshold so if its under it is a running expense that can be offset in the year ( strings fuel etc ) and above it then it has to depreciated over a few years as it is assumed, quite correctly, that the item will be in use over several years ( PA, Guitar etc )
[/quote]As below for a short time it's £250k going back down to £25k in about a year...another of gorgeous Georges stoopid ideas - well possibly not the relief but the transitional rules that cover the changes. Still unless your getting a 60's P in pristine condition not likely to bother you

[quote name='Kinder' timestamp='1366984584' post='2059901']

I'm an accountant and tax adviser as well as a very mediocre bassist. The mileage rate is now 45p per mile for first 10,000 miles. The annual investment allowance (the threshold for writing off assets against tax in the year you buy them, rather than over a number of years) is now £250,000. If you're spending more than that on kit, I really want to come and see you play!!

I'd probably suggest you run it as an informal partnership, so each band member is self-employed. You should strictly register the partnership with HMRC and file a tax return for that each year, plus each partner's individual tax returns. I can't see HMRC getting upset if you instead draw up partnership accounts and then divvy up the profit between each partner, only filing the individuals' returns. As has been mentioned, most bands won't be making any cash after their kit and expenses so I wouldn't bother if you're never making profits. The tax man only gets upset if you're not declaring taxable profits.

Taking it to the other extreme, you can offset losses on your partnership earnings against other income. The losses would have to be pretty big to make it worthwhile though!

I might regret this, but if anyone's got any questions or it's causing them sleepless nights, drop me a pm and I'll help if I can.

Andy
[/quote]
I've offered the same before so no doubt one of us can advise if needs be.

And as above unless your running round doing deps then if you play with the same bunch of guys week in week out you probably are technically in partnership and should register that. That can have its own set of quirks to work through in tax law.

Chances are for a pub covers band any profit, even excluding apital costs on gear, is the square route of bugger all. If you have to make a tax return anyway then cover it off with a note in the additional info section.

Function bands might be more borderline as regards profit remaining and taxable.

BTW it's actually nnot just 20%, there is probably at least another 2% on top for NIC's, but if registered you can defer those.[list]
[*]Keep receipts for everything.
[*]Keep a note of mileage to r/h & gigs & work out on the mileage rate of 45p/mile for yup to 10k business miles
[*]take income from gigs, deps etc
[*]deuct expenses for mileage, r/h room hire, strings, batteries, leads, basically anything you spent to carry on your music business, but ignore gear for the time being
[*]are expenses more than income? you have a loss and [i]might[/i] be able to set it off against other income, but expect HMRC to refuse particularly if you make losses every year in which case all you can doe is carry them forward to set against future profit.
[*]is income more than expenses? you have a profit & there may be some tax & NIC to pay. In which case what did you spend on equipment in the year? claim against the profit to reduce it to nil, always remembering that what you claim as a deduction for gear now will come back in as income later on (that is ato simple and not entirely correct statement but to give the gist of a future problem you could be storing up.
[/list]
The bottom line is that in very many cases the amounts you are talking about are unlikely to large enough to bother HMRC, which is not to say you should just ignore it. You need to keep your receipts and other records against a pull from HMRC, but one would hope that once you put the details before them they will recognise that there are bigger fish to fry.