Declaring your hobby to the taxman

[hubrad]

I'm not 100% sure on this point, but ref. selling gear later, I think that if you've claimed it as a capital expenditure (i.e. it's machinery!) then the proceeds of selling it come under Capital Gains Tax, for which there is a separate allowance. Other items like profits (and losses) from buying and selling shares also get lumped into CGT>

[keeponehandloose]

Certain pub gigs I do ask for a signature on a receipt,not a problem I say.But they dont half get shirty when I ask for acopy of it for my records(which are minimal ,to say the least)

[WalMan]

[quote name='hubrad' post='899857' date='Jul 20 2010, 11:48 AM']I'm not 100% sure on this point, but ref. selling gear later, I think that if you've claimed it as a capital expenditure (i.e. it's machinery!) then the proceeds of selling it come under Capital Gains Tax, for which there is a separate allowance. Other items like profits (and losses) from buying and selling shares also get lumped into CGT>[/quote]
You're not sure, but I am and am afraid I have to tell you you're wrong.

You have a pool of capital expenditure. You add to it and claim relevant reliefs. You sell an asset from within that pool and the proceeds (up to original cost of the asset sold comes back in as a receipt in the pool, which if it has a value of nil will give you a charge, and a charge in any event when you eventually retire from gigging/making money (do we ever!).

If you are lucky enough to have a bass that has appreciated in value through being a vintage rarity and make a profit over cost then that profit will be a capital gain, but [i]probably[/i] exempt due to CGT rules on chattels

EDITs to tweak the answer for correctness / hopefully help in understanding. If you are not sure ask someone in the know, which sadly nowadays [i]probably[/i] does not mean the HMRC Telephone Helplines as recent experience suggests you will get a variety of answers that may well not be correct

Edited July 20, 2010 by WalMan

[stingrayPete1977]

Thats problem 2,If dereks pre EB goes up in value and belongs to his company then thats going to cock it up the other way round,Derek says thanks for all this help that Im passing on to him by the way!

[hubrad]

[quote name='WalMan' post='899959' date='Jul 20 2010, 01:16 PM']You're not sure, but I am and am afraid I have to tell you you're wrong.

You have a pool of capital expenditure. You add to it and claim relevant reliefs. You sell an asset from within that pool and the proceeds (up to original cost of the asset sold comes back in as a receipt in the pool, which if it has a value of nil will give you a charge, and a charge in any event when you eventually retire from gigging/making money (do we ever!).

If you are lucky enough to have a bass that has appreciated in value through being a vintage rarity and make a profit over cost then that profit will be a capital gain, but [i]probably[/i] exempt due to CGT rules on chattels

EDITs to tweak the answer for correctness / hopefully help in understanding. If you are not sure ask someone in the know, which sadly nowadays [i]probably[/i] does not mean the HMRC Telephone Helplines as recent experience suggests you will get a variety of answers that may well not be correct[/quote]
Ah, nice one Walman.. 'chattels' was the word the HMRC fellow used when I asked about the [u]occasional[/u] buying and selling of gear and its relevance (or, as he put it, lack of relevance in this case) to the tax return. That was a couple of TRs ago, before I even started to be aware of what CGT is for(!) I suppose most of us aren't in the position of our basses going up in value by quite enough to worry about then!
Yup, I can imagine retiring from 'normal' work, but while ever body, mind and will are ok I can't imagine life without playing in some context.

[Chris2112]

[quote name='peted' post='898248' date='Jul 18 2010, 06:08 PM']This is exactly what intrigues me - is it worth getting an Accountant when you're just earning a few hundred quid a year? What's the threshold?[/quote]

I'm not sure thats worth it - at the very most, hire an accountant for an hour at the end of the tax year, present them with your books and proof of expenses and ask them to do the number crunching so you can present a feasible looking tax return. You'll pay your £30 or £40 and at least you know your stuff is sorted.

[WalMan]

[quote name='Chris2112' post='919612' date='Aug 9 2010, 01:44 PM']I'm not sure thats worth it - at the very most, hire an accountant for an hour at the end of the tax year, present them with your books and proof of expenses and ask them to do the number crunching so you can present a feasible looking tax return. You'll pay your £30 or £40 and at least you know your stuff is sorted.[/quote]
I think you might pay a bit more than that. There is a basic minimum to cover overheads that would probably make it more like £100-200. I seem to recall the couple of ads from music specialist accountants that used to appear in the MU mag tended to quote around £150 for accounts and return.

Handed over a file for ma-in-laws tax return to her accountant (a small local firm she has used for years because I prefer not to get involved in dealing with friends & family other than casting an eye over stuff - it has the potential to lose a friend or make family occasions awkward) with everything scheduled and reconciled and the bill was still in that range.

If you are going to use an accountant do make sure you write up a decent set of records, keep it on a spreadsheet or similar. Don't just turn up with a carrier bag full of receipts and expect him to sort it out for you, 'cos he won't - or if he does it'll cost you.

If you have the time to check through the notes to the return it is fairly easy. Beware of phoning the HMRC helplines and necessarily relying on the response you get. With the best will in the world the person you speak to will be an undertrained call centre drone talking from a script. For example
[quote name='hubrad' post='918901' date='Aug 8 2010, 06:09 PM']'chattels' was the word the HMRC fellow used when I asked about the [u]occasional[/u] buying and selling of gear and its relevance (or, as he put it, lack of relevance in this case) to the tax return.[/quote] Now it depends how you broached the question, and so far as it goes he was correct, but it overlooked either [list]
[*]the reversal of relief you might have claimed for the gear against gigging income, or
[*]the possibility that if you make a habit of buying & selling stuff (perhaps picking up bargains on eBay and selling them on fairly quickly) you are almost certainly in business as a retailer and liable to income tax on the profits you make
[/list]

Edited August 9, 2010 by WalMan

[TimR]

It's August now. Just keep a record of everything you spend and receive. Keep receipts and write it all in a book. By the time January comes you will have a fair idea of what sums are going to be involved. When you know then ask an Accountant. The IR can't ask you for anything until the TAX year is complete anyway. Can they?

I just kept a list of all the gigs I had done and how much I got paid for each one. If you also keep a list of all the rehearsal dates and how much the rooms cost. Put reciepts for gear in an envelope. You can easily do a googlemaps for mileage at a later date if it comes to that. You'll probably then find out how much your hobby is actually costing you.

Edited August 9, 2010 by TimR

[WalMan]

[quote name='TimR' post='919704' date='Aug 9 2010, 03:29 PM']It's August now. Just keep a record of everything you spend and receive. Keep receipts and write it all in a book. By the time January comes you will have a fair idea of what sums are going to be involved. When you know then ask an Accountant. The IR can't ask you for anything until the TAX year is complete anyway. Can they?[/quote]For a small source like this, and assuming you are employed otherwise, then any tax becomes due on 31 Jan following the end of the tax year. So tax on income in the year ended 5 April 2010 is due by 31 Jan 2011. Interest runs from then and if you have not paid by the end of Feb there is a 5% surcharge

[quote name='TimR' post='919704' date='Aug 9 2010, 03:29 PM']I just kept a list of all the gigs I had done and how much I got paid for each one. If you also keep a list of all the rehearsal dates and how much the rooms cost. Put receipts for gear in an envelope. You can easily do a googlemaps for mileage at a later date if it comes to that. You'll probably then find out how much your hobby is actually costing you.[/quote] That's about the size of it.

Calculate mileage costs @ 40p/mile for the first 10k business miles, 25p/mile thereafter but does anyone do more than 10k a year!!

Claim up to £4/week for use of home for personal practice time, presuming you do practice, You do practice don't you?

[bassace]

[quote name='WalMan' post='920260' date='Aug 10 2010, 06:33 AM']Calculate mileage costs @ 40p/mile for the first 10k business miles, 25p/mile thereafter but does anyone do more than 10k a year!![/quote]

It's very easy to knock up more that 10k if you claim mileage for the day job.

[WalMan]

[quote name='bassace' post='920314' date='Aug 10 2010, 08:32 AM']It's very easy to knock up more that 10k if you claim mileage for the day job.[/quote]
Indeed, but if they are separate & distinct there should be no issue in claiming the higher rate for 10k on the employment and 10k on your personal musician business.

Although the HMRC Manuals do not say this as such re claims for employment business & separate musician business, in connection with business miles claims for journeys for employment they do say[quote][b]If you work for different employers[/b]
If you have two or more employers which are independent of each other, you're due the higher mileage rate for business mileage in each job.[/quote]

[tauzero]

If you're PAYE and want to declare expenditure and earnings, can you just do the music expenditure and earnings and rely on HMRC to tie the two together or do you need to declare both? And I'm still not clear as to whether (if I'm running at a loss) that would result in a rebate.

[Bilbo]

I do my return on-line now and its really easy. Your PAYE stuff is all on your P60 and another document relating to expenses paid (P16 or something like that) and your music income is 4 figures income, expenses capital expsnditure profit/loss. Takes no time at all if you have the figures to hand. I earned around £6k 3 years ago, £4K 2 years ago and £3.3K last year. It was just as easy each time.

I work on 40p per miles for travel and the rest is just figures you have spent on gear/accessories.

[WalMan]

[quote name='tauzero' post='920752' date='Aug 10 2010, 04:05 PM']If you're PAYE and want to declare expenditure and earnings, can you just do the music expenditure and earnings and rely on HMRC to tie the two together or do you need to declare both? And I'm still not clear as to whether (if I'm running at a loss) that would result in a rebate.[/quote]
You need to complete a return with it all on. As before a bit of hobby income creating a loss might get you a refund initially, but is likely to be knocked back by HMRC if it carries on year after year, and they [i]could[/i] go back and unwind previous refunds by discovering that you weren't really "trading with a view to profit". Probably not if the numbers are small but there was a case recently where they did - though in that case the person involved was frankly taking the p155

[quote name='Bilbo' post='920758' date='Aug 10 2010, 04:20 PM']I do my return on-line now and its really easy. Your PAYE stuff is all on your P60 and another document relating to expenses paid (P16 or something like that) and your music income is 4 figures income, expenses capital expsnditure profit/loss. Takes no time at all if you have the figures to hand. I earned around £6k 3 years ago, £4K 2 years ago and £3.3K last year. It was just as easy each time.

I work on 40p per miles for travel and the rest is just figures you have spent on gear/accessories.[/quote]
One other thing you might want to watch Bilbo, and anyone else who is PAYE and self employed, is the NIC's. You will, or could be paying Classes 1, 2 & 4 contributions (probably not Class 4 on the numbers you quoted) and there is an overriding maximum of contributions. You [i]might [/i]consider applying to defer the Class 2 & 4 (the bits on self employment)

[largo]

Funny there's nobody yet said they don't pay tax on absolutely everything they earn. Are you telling me if you get £40 in your back pocket you declare that? And if you do, then surely you should have an invoice & receipt to prove that's what you earned. And for the record, I pay tax on all my band earnings as well.

[crez5150]

[quote name='largo' post='920968' date='Aug 10 2010, 08:15 PM']Funny there's nobody yet said they don't pay tax on absolutely everything they earn. Are you telling me if you get £40 in your back pocket you declare that? And if you do, then surely you should have an invoice & receipt to prove that's what you earned. And for the record, I pay tax on all my band earnings as well.[/quote]

Same with any business