Category: Business Expenses

Income Tax: The nine badges of trade

29/1/2017

In the UK Income tax is charged on “the profits of a trade, profession or vocation”.

You are assessed as trading and therefore must do a tax return if you exhibit one of the nine badges of trade. But do you know what these are? See the box below for an explanation.

First you need to note that a lot of tax law focuses on "the asset”. However there isn’t a lot of tax case law relating to artists - so what follows is my interpretation.

Please note that I’m NOT a tax accountant and if you need professional advice you should pay a professional!

For what it's worth, in the case of an artist I read “ the asset” as meaning either your stock of equipment and materials used to generate sales (which has a balance sheet value); or your stock of artwork (which has a balance sheet value) which is exhibited and sold over time via exhibitions, online, art fairs or wherever to generate an income.

The nine badges of 'trade'

One of the reasons why HMRC wants to know whether or not you are trading is because it needs to know what sort of tax to apply to your income.

For example, money you receive can be a taxable receipt that can arise in a number of ways. These are:

self-employment income subject to income tax and class 2 and 4 National Insurance contributions (NICs);
capital subject to capital gains treatment;
some form of investment income, taxation depends on the taxable status of the individual or organisation that received it

Or it might be a non-taxable receipt.

Below are the Nine Badges of Trade which HMRC have declared to be indications of trade - and my interpretation of how these apply to artists.

Please also remember that at the end of the day what matters is if you generated trading income or intended to trade - NOT how much profit you've made.

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Free Self-employment Webinars by HMRC

23/9/2016

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Are you new to self-employment as an artist?

Are you still finding your feet in relation to what's required for tax and business expenses?

If you are, there's an opportunity for you to sign up for FREE self-employment webinars by HMRC. These are

next week - on the 27th, 29th and 30th of September
deal with the basics you must get on top of if you are a self-employed artist.
NOT going to be designed specifically for artists but you will be getting OFFICIAL advice from those who will be vetting your tax returns!

The front door of HM Revenue & Customs at 100 Parliament Street

You’ll also get the chance to ask specific questions in the webinar and you don’t need a webcam or microphone to use this service.

My guess is the webinars are probably also suitable for more experienced people who want to check out they're doing the right thing! Or maybe just a refresher to remind you of anything you might have forgotten!

Record keeping for the self-employed - 27 September 2016 15:00 to 16:00
How to set up a record keeping system and what to record.
Find out about

basic principles of good record keeping
what HMRC expects of records created by sole traders and partnerships
digital record keeping apps
how long you must keep your records.

Register now

Business expenses for the self-employed - 29 September 2016 11:00 to 12:00
This webinar covers

what business expenses are
a quick guide as to what commonly is and isn't allowable
help on how to work out your motoring costs
help on expenses of using your own home
what simplified expenses are and why they can save you time

Register now

Capital Allowances for the self-employed - 30 September 2016 9:00 to 10:00
Find out

how to claim Capital Allowances when you buy large items of equipment for your business. (for self-employed businesses who use the traditional 'income and expenses' method of accounting)
how to claim Capital Allowances for cars - for self-employed businesses using the traditional method of accounting and the Cash Basis method of accounting.
Includes the different types of Capital Allowances available and some practical examples.

Register now

You can also follow the HMRC Twitter feed for HMRC Business Help @HMRCbusiness

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How to keep on the right side of the tax man

10/9/2016

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Top of my article about artists' business expenses and tax in 'The Artist' September 2016

My article in the September edition of The Artist magazine (in the UK) is all about how to Be business-like with expenses and tax.

It contains lots of brief tips about how to make your tax affairs easier to manage and avoid problems with the Inland Revenue. Headings include:

Starting out - what you need to do when you start to trade and sell art
Tax Returns - the forms you need to complete
Help yourself - why you may not need an accountant
Be organised - ways to keep on top of the paperwork
Account efficiently - simple ways to keep your accounting simple
Allowable expenses - what you can claim
Cash-based expenses - a checklist for those accounting on a cash basis
Flat rate expenses - HMRC approved rates which make life even simpler!
Cash expenses not allowed - what you can't claim
Losses - pointers to the guidance on losses
If you are successful - how accounting and tax changes (in brief) as you generate more income

The tips are all one side of A4 making them very easy to file!

This edition is still on sale in all good newsagents in the UK but is also available as a back issue and is also available online as a digital subscription.

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Tax Tip: Travel expenses for artists

28/1/2016

Reader's question #1: Are taxes the same for all income - and what about travel expenses?

Two questions from a reader:

Are taxes the same for all different sources of income?
Can I deduct my travel expenses from my income before tax?

Read on to find out my opinion on the questions asked (and don't forget to read the note at the end)

Reading through articles about taxes for artists, they all assume that the primary income comes from the sale of art (paintings, etc.)

Are taxes the same when the primary income is freelance teaching (as a Teaching Artist)?

For example, may I deduct my mileage to and from individual teaching stints at art centers where I teach children?

Are taxes the same for all different sources of income?

In the UK, the answer is ALL INCOME is liable to tax assessment - no matter how you earn it.

In fact, my P60 (for my pension) has a neat quote in it which I've added into the HMRC section of Tax Tips for Artists.

By law you are required to tell HM Revenue & Customs about any income that is not fully taxed, even if you are not sent a tax return.

Can I deduct my travel expenses from my income before tax?

Whether you can claim travel expenses depends on how you earn your income

You may not be aware but many artists do NOT just earn income from sales of their paintings.

Very many professional artists who also teach earn income:

EITHER through a full or part-time job as an art teacher (i.e. they have a contract of employment; they are an employee of a school/college/university who pays them a salary and deducts tax and NI at source).
OR their services are hired by an education provide on a sessional basis for a fee r (i.e. there is no contract of employment - hire is on a 'session by session' basis only).
OR they run their own independent workshops and courses.

The issue of whether or not you can claim travel expenses relates to whether or not you are a sole trader and wholly responsible for all your actions.

So for example, (in the UK) if you are an employee with a contract of employment and what you do is dictated by others (eg you teach a set curriculum); you are managed and assessed as to competence by others and paid on a monthly basis - then you can't claim home to work travel expenses.

That's because you are the same as every other employee in the UK - and employees can't claim home to work (and back again) expenses as a business expense.

However if you are completely freelance and have a number of different people who hire you to teach art and/or you deliver your own workshops at different venues you hire around the country - then you are self-employed and you can then claim your travel expenses.

Basic principles: you can only claim travel expenses:

when self-employed AND
for journeys wholly and exclusively for business purposes.

EXAMPLES:

If you're employed by a school as an art teacher, you will have one designated work base and cannot claim travel expenses to and from where you teach by way of a tax deduction.
If your school requires you to work peripatically on different sites, you can claim travel expenses from the school for trips away from your designated work base. You cannot claim travel as a tax expense.
If you're employed part-time as an art teacher, you can also choose to deliver an independent workshop in a venue of your choice. In these circumstances you cannot claim travel expenses for your contract of employment as a part-time teacher BUT you can claim your travel expenses from home to the venue where you deliver an independent workshop. However you must also then complete a set of basic accounts and the self-employment part of the self-assessment return.
You deliver workshops all over the country and have no contract of employment. You can charge your travel expenses as a deductible expense according to the rules defined by HMRC. If you don't use public transport, it's often useful to use the HMRC approved mileage rate for the number of miles you do per annum.

Note: This article is intended to be for general information and is should not be relied on as definitive tax advice. It's your responsibility to check the rules for the country where you live and work and the relevant tax year. The tax rules may be similar or they may be different.

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Art Business Info: NEWS

Income Tax: The nine badges of trade

The nine badges of 'trade'

Free Self-employment Webinars by HMRC

How to keep on the right side of the tax man

Tax Tip: Travel expenses for artists

Reader's question #1: Are taxes the same for all income - and what about travel expenses?

Are taxes the same for all different sources of income?

Can I deduct my travel expenses from my income before tax?

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