Tax - what expenses can I claim?

[RichardT]

For tax year 2022/23 my income from music is enough that I have to declare it to the taxman.

I’m going to ask this question of The HMRC helpline but as it’s specialised I don’t think they’re going to be very helpful. So I thought I’d see if there are others in the same situation before I decide if I need to consult a tax accountant.

Anyway…

The descriptions of what I can claim as allowable expenses seem quite tight. I can claim professional fees - but this does not seem at first sight to cover mastering costs and paying my music distributor.

I’ve read the MU guide to tax for musicians but it doesn’t mention them as allowable expenses.

If there’s anyone on the forum in the UK registered as a sole trader who gets music mastered and releases it to DSPs - have you been advised that you can claim mastering and distribution costs as expenses?

Many thanks!

[Hugh Robjohns]

Any costs directly and exclusively related to your business endeavours are legitmate expenses and can be claimed against any profits. I see no reason why genuine mastering costs and distributor fees wouldn't be allowable.

I've always found the HMRC to be very knowledgeable and helpful with enquiries like these. The challenge is getting through to them....

And if this is an ongoing business, a good accountant can be a real money-saver and a worthwhile investment.

[Stratman57]

If you have to ring HMRC try and get dialing at 8:00am when they open. also the help line is an 0300 number so you get charged for every minute you are holding. It cost me £45 in call charges trying to pay my additional class 2 NICs.

Regards, Simon.

[Eddy Deegan]

I've been a sole trader for some years as the company of which I am a co-founder is registered in The Netherlands and the overheads of administering any other arrangement for UK tax purposes are rather onerous.

As a sole trader the nature of your business isn't that relevant. Things you can consider claiming for include mobile phone costs, internet costs, car mileage, domestic bills, online services (such as 3rd party email providers, hosting company costs etc.) and more along the same lines.

My accountant asks me for the total of all these costs and subtracts that total in part using a formula from my gross annual revenue. I'm not familiar with the exact formula in question but basically if you use any resources that would normally be ignored by PAYE you can factor them into your return.

I would recommend seeking out an accountant to do this for you. They understand a lot more about the tax rules than most of us do and in my case the £400 (though it's just gone up to £450 this year) fee they charge is money well spent as I've saved a lot more than that compared to approaching the self assessment process naively and answering the questions on the tax return as presented.

The system has plenty of scope for you to rightfully claim that to which you are entitled but doesn't make it easy to determine how to go about it. I (daftly) avoided getting an accountant for the first couple of years and paid significantly more tax than I needed to as a result. Life's too short to chase that down and get it back but based on the 4 years since getting an accountant I can assert that getting qualified assistance is well worth it.

[Eddy Deegan]

For illustrative purposes I'm looking at my last SA302 Tax Calculation summary for the last tax year.

The total money I received in payment was X.
I provided a figure, Y, to the accountant which was the total of charges relating to ISP, mobile, council tax, mortgage interest, gas, electric, water, office equipment, email services and the cost of the accountant services themselves (for they count too). I also gave them a figure for charity donations and a mileage for business-related car use, though I've no idea how the latter gets factored in.

The accountant applied the formula I don't know much about and deducted approximately 60% of the Y figure from the X figure. They then deducted my personal tax allowance from that result and I was taxed on the balance.

Depending on the figures involved you may be asked to pay an additional balance on account towards the revenue they think you may be liable for in the next tax year. You can ask HMRC to reduce this if you think their calculation is wrong but you need to talk to them about it if so.

Edit: I just realised I'm coming from a position where all my income is through being a sole trader and there is no PAYE involved. In your case if you're mixing PAYE and self-employed income I'd definitely hire an accountant.

[Exalted Wombat]

It's actually much more straightforward than you imagine. You write down how much money you received. You write down how much you had to spend to enable you to earn that money. Just one figure goes on your tax form, the difference between the two.

If you are investigated, you need to be able to show paperwork that supports these figures. And you need to be able to argue the case for each expense as necessary to running your business. If you lose the argument over any particular item, but it wasn't a ridiculous claim, nothing too terrible will happen.

I can't see there being any argument about claiming mastering costs, as long as that project DID make you some money.

[RichardT]

Thanks very much everybody. Thanks for the detailed analysis, Eddy.

[BigRedX]

Don't forget that if you have a space/room in your dwelling where you do your music (as opposed to a dedicated studio in another premises) you can claim a percentage of your rent/mortgage/rates/water/gas and electricity plus anything spent specifically on improving that space. It is worked out as how big this space is in relation to your whole dwelling multiplied by what percentage of your time is spent on making music. So if your music space is 20% over your overall property size and you send 4 hours a day on music you can claim 3.33% of the above.

[Hugh Robjohns]

I believe you need to be a bit careful claiming back your home work space costs as there can be a capital gains tax issue against the business if you later sell the property. Again, a good accountant is well worth their weight here!

[Sam Spoons]

If your music space is used exclusively for music production you can, in theory, claim 20% irrespective of how much time you spend in there as the room has no other domestic function.

WRT 0300 numbers, they are charged as local numbers so if you have unlimited free minutes, as most of us do these days, a call to an 0300 number will be included in them and cost you nothing (this was not always the case).

Capital gains on a room used as a workspace? Surely that would only apply if you claimed part of the purchase cost of the house? If you only claim part of the running costs capital gains does not apply.

[Hugh Robjohns]

I can't remember the details, just a long distant conversation with the accountant about how much the business should claim for my studio space. There was definitely a warning about CGT, I just can't remember the details.... sorry.

Edit... here you go:

Note: If you use a room in a home you own, ‘exclusively’ for work, this could reduce the Capital Gains Tax private residence exemption when the property is sold. This is because any part of the property exclusively used for business will not qualify for Capital Gains Tax private residence relief. This problem may be avoided by ensuring there is some domestic use of the study (e.g. keeping a second TV in the study, and using it from time to time for personally).

[ManFromGlass]

I know this “detail-oriented” guy who even claims a percentage of toilet paper as he has a music room in his house.

[James Perrett]

I don't itemise domestic bills but just claim £10 per month for domestic expenses. The amount you can claim also depends on how much time you spend on the business. You have to spend at least 25 hours per month on the business to use this scheme.

If any of your gear is exclusively used for business purposes you may want to look at capital allowances. For expensive bits of gear you can't claim the whole cost of the gear in one year against tax. You claim something like 20% in the first year and then 20% of the remaining value in the second year and so on. I no longer claim them (much of my gear went through capital allowances many years ago) so I don't know the current details so look on the HMRC website or watch out for their webinars.

Sign up for the HMRC updates too - they are useful if you are starting out with self employment.

[Essex Boi]

I'm another supporter of getting an accountant if for no other reason than it saves time. Plus you're less likely to get a kicking from HMRC than if you make a mistake doing the numbers yourself. HMRC are helpful and knowledgeable, but it can take ages to get through to a human being.

I use an accountant for my business and personal tax returns, because paying someone £XXXX a year is better value than me having to set aside a fortnight to do it myself. On top of that it's an allowable expense and therefore it's offset against tax effectively costing nothing.

Plenty of self-employed people do it themselves though. A clear head, a sharp pencil and a good supply of caffeinated beverages are all that's needed.

[Sam Spoons]

I can't remember the details, just a long distant conversation with the accountant about how much the business should claim for my studio space. There was definitely a warning about CGT, I just can't remember the details.... sorry.

Edit... here you go:

Note: If you use a room in a home you own, ‘exclusively’ for work, this could reduce the Capital Gains Tax private residence exemption when the property is sold. This is because any part of the property exclusively used for business will not qualify for Capital Gains Tax private residence relief. This problem may be avoided by ensuring there is some domestic use of the study (e.g. keeping a second TV in the study, and using it from time to time for personally).

I didn't know about that but it is WRT to capital gains tax which is not normally applicable when selling your home. Full details from HMRC here https://www.gov.uk/tax-sell-home