Category: Tax Tips For Artists

Making tax digital

21/10/2020

Covid or no covid, in the UK:

if you are self-employed
AND run an unincorporated business
AND generate total business income (that's turnover not profit) of more than £10,000 per year
you MUST submit Income Tax Self Assessments ONLINE from April 2023.

I'm guessing most artists are already online with their tax returns - but for those of you who are not, now is the time to get your act together if you generate more than £10k turnover p.a.

HMRC are providing a lot of help in terms of how to make it easier to get your tax right and manage your tax affairs more efficiently.

The new Making Tax Digital Image from HMRC

HMRC Info and Guides

Essentially what happens with Making Tax Digital for Income Tax is you have to report your earnings in a new way to HMRC.

Self Assessment tax returns per se are out
Replaced by you needing to use software to keep digital records and send Income Tax updates
plus sending quarterly updates rather than an annual return.

These are guides to how the new system works

Making Tax Digital for Income Tax
Follow the rules for Making Tax Digital for Income Tax
Guidance: Help and support for Making Tax Digital - Watch webinars and videos for help with Making Tax Digital for Income Tax and VAT if you’re an agent or a business.

These are a couple of Guides around software. It's ESSENTIAL that the accounting software you use can connect with HMRC’s Government Gateway, to allow quarterly summaries to be submitted directly.

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Plus social media for HMRC
Facebook: https://www.facebook.com/HMRC/
Twitter: HMRC Customer Support @HMRCcustomers

Making Tax Digital for Income Tax Self Assessment
You can register for live webinars providing

an overview of Making Tax Digital,
the latest position regarding Income Tax Self Assessment and
You can ask questions using the on-screen text box.

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UK: Making Tax Digital - update (July 2020)

24/7/2020

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IF - in addition to employment income you earn - you earn (or aim to earn) more than £10,000 per annum from your self-employment you need to be aware that "Making Tax Digital" (MTD) is becoming MANDATORY for

all unincorporated businesses (that includes sole traders) and
landlords
with TOTAL business or property income above £10,000 per year
as from April 2023.

Basically this means any artist or art organisation that aims to earn a living or significant income - 0f £10k p.a. or more - other than from being employed by others will need to comply with the requirements of MTD.

DO NOT DELAY checking out what this means!!

What you need to know

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.

HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is:
- more effective
- more efficient
- easier for taxpayers to get their tax right
Overview of Making Tax Digital (update July 2020)

The extension of scope of Making Tax Digital relevant to other groups was originally deferred after representations following initial announcement of HMRC's intentions - to make sure the system worked before it was rolled out to smaller businesses.

KEY POINTS AND TIMELINES as at July 2020
as per the Overview of Making Tax Digital.

Key points are:

Making Tax Digital (MTD) is already mandatory for all VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) have been required to follow the Making Tax Digital rules since April 2019 by
- keeping their records digitally (for VAT purposes only)
- provide their VAT return information to HMRC through Making Tax Digital compatible software
- i.e. If you’re a VAT registered business with a taxable turnover above £85,000 you should be keeping digital records NOW.
- HMRC have published a VAT Notice which explains the rules for Making Tax Digital for VAT and about the digital information that must be kept.
- see also Keep digital records for Making Tax Digital for VAT
MTD for VAT became mandatory from 1 October 2019 for businesses that fall into any of the following categories:
- trusts;
- not for profit organisations that are not set up as a company;
- VAT divisions;
- VAT groups;
- public sector entities required to provide additional information on their VAT return (such as Government departments and NHS Trusts)
- local authorities;
- public corporations;
- traders based overseas;
- those required to make payments on account; and
- annual accounting scheme users.
From 1 April 2022 all VAT registered businesses MUST follow these rules regardless of turnover.
From 6 April 2023, Income Tax Self Assessment (ITSA) for all unincorporated businesses and landlords with total business or property income above £10,000 per year - becomes mandatory from their next accounting period starting on or after 6 April 2023.
If you are a self-employed business or landlord you can voluntarily use software to keep business records digitally and send Income Tax updates to HMRC instead of filing a Self Assessment tax return.

REFERENCE
Besides references to paperwork in the HMRC website above,

Making Tax Digital | Association of Accounting Technicians (who tend to do a lot of tax work) - a useful simple summary
Making Tax Digital | Accounting Web - also have a useful series of articles
Find software for Making Tax Digital for VAT | HMRC

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NEW: HMRC Community Forums & Knowledge Base

11/11/2019

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GOV.UK Webpage introducing the HMRC Community Forums

An email in my inbox this morning announces that HMRC have got NEW HMRC online customer forums to provide help to those in the UK with tax queries.

Do you know that HMRC have a new online customer forum where you can post questions on a range of tax topics that are answered by HMRC experts?
Anyone can view the forum. To post a question, simply register and create a profile – it’s that easy.
There’s also an extensive Knowledge Base, where you can find information on a number of subjects to help you with your tax matters.
Find out more about our new HMRC online customer forum and register today.

Two key links on the homepage for the HMRC Community Forums are

You can VIEW the Community Forums without registering on https://community.hmrc.gov.uk/forums/customerforums/ - and below I've got a screendump of some of the topics they're covering

As one might expect "Making Tax Digital" is very popular!

EXAMPLES of some of the Community Forum TOPICS

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The Forums seem to require a registration to create a profile that appears to be completely separate to your official ID on the GOV.UK website - and as always with forums we are seeing some interesting ID names!

You can then read the individual threads relating to things of interest to you.
For example, here's one relating to the £1,000 Trading Allowance.

Note that, when registering, those acting as agents for taxpayers have to make themselves known as acting in a professional capacity. I'm guessing this means an eye will be kept on any comments they make.

I'll certainly be bookmarking the link to the Knowledge Base - and keeping an eye on the Forums!

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VAT for Artists UPDATE #1/2019

3/3/2019

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My VAT for Artists page on Art Business Info for Artists has just had a fairly major overhaul

Major update - art education and digital services

The following two sections:

VAT on Art Education - eligible bodies and business activities - I'd be interested to hear from all art schools which do not qualify as eligible bodies.
VAT on Digital Services - required reading for anybody who is supplying anything for sale which is a digital supply.

Some may be surprised by what is - and is not - deemed a digital service i.e. vattable (Source: VAT rules for supplies of digital services to consumers in the EU)

Unless you sell digital services entirely through digital platforms or marketplaces, who take on responsibility for accounting for the VAT due, you must consider how you intend to account for VAT on supplies of digital services to consumers.
VAT rules for supplies of digital services to consumers in the EU

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Two new sections re. turnover and art societies

PLUS I've created two new sections relating to:

Calculate VAT Taxable Turnover - those who indulge in barter would be well-advised to pay attention to this!
VAT on Art Societies ("Clubs and Associations") - which needs more work. I'd like to hear from art societies who have sought and received expert advice on how they account for or claim exemption from VAT.

Nothing is particularly related to recent changes so much as the needed to be reviewed and needing to review and update for changes which have been made by HMRC - and to fill some gaps in the information.

I'll be going back and will do some more updating - after my brain stops hurting!

If any any art tutors, suppliers of digital art supplies/tuition and art societies have any comments / queries please comment below - but I cannot guarantee I can assist. ALSO please do follow the official guidance links supplied first.

IMPORTANT DISCLAIMER
Those who need to know about VAT need to start somewhere.....

None of the information on the VAT for Artists page is definitive, comprehensive or complete.
None of the advice on the page should be treated as professional.
Information and advice may also be out of date.

That's because it's absolutely impossible to keep up with all the changes unless you are a qualified professional practitioner who is doing VAT full-time and there's no way I'm going to do that!
However I do reference relevant government and EU guidance where I can - and official guidance is always a good place to start when checking any aspect of VAT. It also helps frame specific questions to professionals which can reduce fees due for advice requested and given.
This page also references advice and guidance from one firm which does appear to know what it is talking about in relation to the EU regime in different countries and cross border sales- and I have found few equivalents. I'm not averse to hearing about more!

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Does your art create a second income?

28/1/2019

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Do you make a second income from your art?

As well as knowing what you can claim against tax, it's important to know what you need to declare.

Even if your art sales are a second income, by trying to sell only for cash and to not declare anything, it can backfire on you in the long run.
a comment on a previous site I ran

Do you know that Her Majesty's Revenue & Customs (HMRC) in the UK are trying to recover more tax from those with second incomes?

Other tax authorities in other countries are also trying to do the same thing.

In particular, they're very interested in "the black economy" - i.e. those that don't declare that income for tax purposes (a.k.a. tax evasion)

business activity and income that people do not record in order to avoid paying tax on it

business activity that is illegal because tax on profits is not paid to the government

Definitions of the 'black economy' | Cambridge Dictionary

There are lots of websites highlighting how you can use your talents and skills to make a second income.

However very few tell you about the tax implications of a second income.

Bottom line - if you get found out, the result can be very significant punitive fines and possibly a criminal record..

On the other hand, some tax authorities realise that the right tax might not get paid at the right time by the people who need to - because not everybody understands the system. They want to make it possible for people with unpaid tax to remedy mistakes before the taxman contacts you.

AN EXAMPLE OF CONFUSION

Some people believe that it's possible to earn a certain amount of additional income before you need to declare it for tax purposes.
BUT:

They assume that their annual personal tax allowance is equivalent to permission NOT to declare earned income up to that sum (e.g. see Tax charges on a second income)
They do not know that an individual's personal allowance is built in to the tax code/rate used by your employer to tax your main source of income - and is not available to offset second incomes.
They are unaware that all second income attracts the highest rate of tax used for your total income.

A second income from your art

Lots of non-professional artists make a second income from their art from their art. Not so many remember to check out what that means for how they need to pay tax on that income.

This post provides a summary of

some of the things you need to know about taxation on second incomes (but it is NOT professional/legal advice and I owe you no liability in respect of what is set out below.)
what you must do to declare any unreported tax liabilities (in the UK)

make sure you declare everything you should add - and do your sums correctly

What is a second income?

The type of activities that tend to generate a second income - in general - as described by HMRC are set out below.

I've also included some hypothetical EXAMPLES of what such activities might be identified and categorised for artists

fees from consultancy or other 'expert' services such as public speaking or providing training - EXAMPLE: lectures to art schools, art classes at home (or elsewhere; individual personal tuition delivered to various students)
payment for organising parties and events or providing entertainment (EXAMPLE: organising painting parties / painting holidays for people who are not close friends)
income from activities such as taxi driving, hairdressing, providing fitness training or landscape gardening (EXAMPLE: painting commissions to order)
profits from spare time activities such as making and selling craft items (EXAMPLE: selling artwork online.)
profits from buying and selling goods, for example regular market stalls, boot sales etc (EXAMPLE: selling art or crafts on a regular basis at various local / regional art fair or market)

To get clarification of how HMRC will treat you, it's a good idea to reference two other posts

Income Tax: The nine badges of trade (January 2017) - what specific tests HMRC use to differentiate between artists who are trading and hobby artists who make a little bit of hobby income
The bonus if you're selling art - but not a lot! (April 2018) - about the hobby income allowance - which allows hobby artists to can earn small sums and not pay tax (so long as they keep proper records). The tax free allowance is also available to those earning more than £1,000 - so long as they don't reduce their tax bill by claiming expenses and offsetting these against their turnover.

If your annual gross trading or property income, from one or more trades or businesses is more than £1,000 you can use the tax-free allowances, instead of deducting any expenses or other allowances.

HMRC and second incomes

It does not matter why your tax affairs are wrong, it’s better to come to HMRC and admit any failures or inaccuracies rather than wait until we contact you
How to make a voluntary disclosure to the HMRC (updated January 19th 2019)

In 2014, the HMRC ran a campaign relating to second incomes which took the approach that most people want to pay the right tax - but sometimes they just find the whole process rather confusing. It offered people the opportunity to disclose their situation in relation to any unpaid tax. The campaign finished in 2017.

Now that campaign has come to an end, the approach continues to be supportive rather than punitive in the first instance - but ONLY for those who make a formal disclosure.

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Art Business Info: NEWS

Making tax digital

HMRC Info and Guides

UK: Making Tax Digital - update (July 2020)

What you need to know

NEW: HMRC Community Forums & Knowledge Base

VAT for Artists UPDATE #1/2019

Major update - art education and digital services

Two new sections re. turnover and art societies

Does your art create a second income?

A second income from your art

What is a second income?

HMRC and second incomes

Art Business Info. News for Artists

Visitors so far

GET Art Business Info. NEWS by Email

Author

Archives

Categories

Art Business Info: NEWS

Making tax digital

HMRC Info and Guides​

UK: Making Tax Digital - update (July 2020)

What you need to know

NEW: HMRC Community Forums & Knowledge Base

VAT for Artists UPDATE #1/2019

Major update - art education and digital services​

Two new sections re. turnover and art societies​

Does your art create a second income?

A second income from your art​

What is a second income?​

​HMRC and second incomes​

Art Business Info. News for Artists

Visitors so far

GET Art Business Info. NEWS by Email

Author

Archives

Categories

HMRC Info and Guides

Major update - art education and digital services

Two new sections re. turnover and art societies

A second income from your art

What is a second income?

HMRC and second incomes