This page is dedicated to information about UK tax for artists

​Is your art in the UK a Hobby or a Business?
  • Does your art provide you with a second income that needs to be declared for tax?
  • Do you understand the importance of the nine 'badges of trade'?
  • ​Are you aware of tax implications of your current activities?
    ​
Plus covers HM Revenue & Customs (HMRC), and self-assessment:
  • why you must separate personal and business taxes
  • how to register as a sole trader
  • all about the hobby tax allowance for non-professional artists earning no more than £1k p.a.
  • self assessment for artists
  • allowable business expenses for artists
  • budgeting for and paying your self-assessment tax bill
  • moving towards digital taxation - returns and payments - and who has to do digital tax returns quarterly
  • tax incentives to reduce inheritance tax
MORE INFORMATION is available on the following pages:

NOT on this site

This site does NOT provide:
  • Definitive answers on all matters relating to tax records for where you live. 
  • "Professional advice" available from somebody  with a tax qualification and current expertise of tax affairs anywhere in the world.  (There is just no way I could ever keep up with all the changes!)
You should engage/pay a professional for tax advice IF:
  • your tax affairs are complicated 
  • you have a specific tax query which you can't find an answer to from official information available online.
Banner Image: crop of HM Treasury and Foreign Office (on right) by Robert Scarf
HM Revenue and Customs, 100 Parliament Street, London SW1A 2BQ UK

BADGES OF TRADE:
​
Is your art a hobby or a business in the UK? 
​What are the nine badges of trade?
Can you claim expenses against tax?
​

  1. The category “trading income” encompasses both 
    - income from a trade, for example plumbing or building and 
    - income from a profession or vocation. A profession would include accountancy or law. A vocation includes acting, ballet dancing, theatrical performing, sport etc.
    ​Tolley's Tax Training
​In the UK, there is a concept called the "Badges of Trade".  This section is about:
  • how they came about,
  • how they are defined and
  • why you NEED TO KNOW about them in relation to earning income from your art.
​
As a rule of thumb if a hobby is profitable then it will be treated as being run on a commercial basis.
​a firm of accountants
Picture
Summary of the nine "Badges of Trade" as determined by the Courts and listed by HM Revenue and Customs
A distinction is made between
  • a ‘trade’ this is normally a continuous operation with a degree of organisation or an infrastructure.
  • A ‘venture in the nature of a trade’ - which may lack those attributes but still display some characteristics of a trade.  
Initially there were six badges of trade in 1955. Developments since then mean that there are now nine. ​The courts have established a number of tests to
  • determine what amounts to a ‘trade’, or ‘trading’, and
  • their decisions provide guidance when the point is in dispute. (see REFERENCE)

These legal tests are known as the “badges of trade” (see the image and the box below)

​​Importantly hobby income is unlikely to be defined as either if it has a history of losses (i.e. it is not operating in a commercial way). This means that any losses incurred may not be treated as business expenses and may not be used to offset tax liability.

​REFERENCE:

The Nine Badges of Trade - applied to art and artists
​

Profit seeking motive

Does HMRC think your motive is to make profit? If your behaviour indicates it is (e.g. Do you actively market it in exhibitions or online? Do you take commissions?), then your income from art sales will be considered to be business turnover and eligible for taxation.
  • Even if you have a full time job doing something else
  • Even if you don't actually make a profit. 
(Note: If you sell paintings in a very minor way you can be classed as a hobby painter which means you can't claim any expenses against tax).

HMRC introduced a £1,000 allowance for “hobby” activities in 2017 which make money. You no longer have to declare the income for taxation - and neither can you claim any expenses against tax. You might use this now as a benchmark as to whether or not HMRC might consider you to be trading.

2. Number of transactions

​The number of transactions matter. 
  • Buying one item and reselling it or something you make from it after some input from you for may not indicate trade - IF it is not repeated. 
  • Repeating the same transaction over and over again matters. If you sell a lot of paintings (or other artwork) this can be considered to be a business.
If you buy large quantities of art materials and attract a trade or other sort of discount (ie get goods for a price not available to the public) then this can be considered a badge of trade.

3. Nature of the asset

The issue is whether you would hold an asset as an ordinary individual. 
  • If the asset you own and use to make income/profit is not personal, then this is a badge of trade. 
  • To demonstrate that your selling activity is a hobby, you may need to prove the goods gave you “pride of possession”, for example, you create pictures for personal enjoyment and hang them on your wall at home for a while before selling them.

4. Existence of similar trading transactions or interests

The issue here is whether the transactions you engage in are related to your normal work.
  • Selling your car is not trade if you are an art teacher but may well be if you are a car mechanic.
  • Selling artwork online if you work full-time as an art teacher, in a gallery or art shop or something else related to art might be taken to indicate you are engaging in trade i.e. they are related activities.

5. Changes to the asset

Do you repair, alter or improve items to make them more marketable at a higher price with a view to generating a profit? If you change an asset you have bought to make it more marketable (e.g oil paint and canvas become an oil painting) and you then sell it for significantly more than the cost of the art materials then you are indicating that this was the purpose of the painting and you are engaging in trade

6. The way the sale was carried out

If it looks like trading then it probably is trading.
  • People who work professionally as artists take stands at art markets and art fairs
  • If you do the same you stop being a hobby artist and start engaging in trade.

7. The source of finance

If you needed a loan to buy your asset (eg a printing press)
  • AND you wouldn’t have bought it as an ordinary individual
  • AND cannot afford to repay the loan without generating income from it e.g. the sale of fine art prints, then this indicates an intention to engage in trade.

8. Interval of time between purchase and sale

How long you hold an asset for is an important indicator of trade. Typically, people who trade successfully tend not to have a long period between the acquisition of the asset used (eg art materials) to create the asset that they then sell (eg artwork). 

9. Method of acquisition.

This one works to indicate those who are NOT in trade. If the assets used for your art business are inherited or gifted to you, then your use of them is NOT an indication of trade. If you are a hobby printmaker, I guess I can’t think of a better reason for your significant other to give you a gift of a printing press! ​
ADVERT

Are you or your art generating "OTHER TAXABLE INCOME"
also know as "Additional Income" or a "Second Income"?
​

HMRC wants ALL income to be identified on your tax return including "additional income" which has been previously referred to as a "second income"

CHECK whether you need to report and pay any tax on income you make apart from your main job or earnings.
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.
Comment on a previous incarnation of this site
Examples of additional (second) income for somebody who is employed could be:
  • Consultancy fees for advice, training, public speaking etc - for artists (which is why I declare all mine!)
  • Event organising/providing entertainment
  • Commissions
  • Network marketing/Direct sales
  • Online sales (Ebay, Amazon, via your website etc.)
  • Making and selling craft items
  • Buying and selling goods e.g. at informal trading events
  • Teaching art classes at home / in a church hall etc.
  • Invigilating art exams
  • Making and selling crafts;
  • Organising events and parties
  • Affiliate Income
A casual receipt is taxable under the miscellaneous income sweep-up provisions where it is received for a service performed as agreed/arranged for reward. This contrasts with a simple gift as a ‘thank you’, for example, after performing a casual service where there was no agreement/arrangement/common expectation that such was for reward.
Checks on Additional Income

Questions HMRC want answers to include:
  • How did you receive your additional income?
  • Did you only sell personal possessions?
  • Did you sell goods or services to your employer, or the employer of your spouse or civil partner?

REFERENCE ​

Can you claim expenses?

Whether or not you can claim expenses as business expenses and hence as tax deductions depends on whether or not you are conducting your activities as a hobby or a business

In short - an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.

​SEE BELOW
  • Hobby Income Tax Allowance (UK) for artists without a business
  • Allowable Business Expenses

HM REVENUE & CUSTOMS - TAX FOR ARTISTS IN THE UK

This section is relevant to all UK Residents 
​​

Her Majesty's Revenue & Customs - Self-Assessment 

​Separate personal and business taxes
​

  • Use your PERSONAL tax account for non-business taxes like
    • any employment income
    • your pension,
    • national insurance contributions,
    • benefits or tax credits.
  • Use your BUSINESS tax account if you are self employed or pay business taxes (like VAT or Corporation Tax) as a
    • ​sole trader
    • partnership
    • ​limited company 
Check if you need to tell HMRC about income that’s not from your employer, or not already included in your Self Assessment if you work for yourself
REASONS WHY HMRC MAY CHECK UP ON YOU
The following may prompt a compliance check into your tax affairs. 
  • entering figures on a return that appear to be wrong
  • making a large claim for a VAT refund when turnover is low
  • declaring a small amount of tax when turnover is high
HMRC actively search for non-registered businesses and undeclared business income. If caught you will have to pay interest and penalties in addition  to any outstanding tax.
Be business-like with expenses and tax | The Artist (September 2016)

Register your business
​

This page tells you how to register as a sole trader with HMRC and pay tax and national insurance contributions on your profits after allowable expenses.
  • You need to register when your business becomes active.
  • You MUST register when your trading income (not profit) exceeds £1,000 in a tax year

You'll get a reference number, an online account and it becomes much easier to register for other taxes such as VAT

You will then get a business tax account in addition to any personal tax account.
If you start working for yourself, you’re classed as a sole trader - even if you haven’t yet told HM Revenue and Customs (HMRC). 

​You must register and follow the rules for self-employed tax and National Insurance.
HM Revenue and Customs
REFERENCE:
You need to set up as a sole trader if any of the following apply:
  • - you earned more than £1,000 from self-employment between 6 April 2021 and 5 April 2022
  • - you need to prove you’re self-employed, for example to claim Tax-Free Childcare
  • - you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits
  • Set Up as a Sole Trader | HMRC

How to become self-employed and pay tax properly!
​

STEP 1 Check if being self-employed is right for you ​
There are other ways to work for yourself. Check if you should set up as one of the following instead:
STEP 2 Choose the name you want to trade under
You can register a trade mark if you want to stop people from trading under your business name.
STEP 3: Check what records you'll need to keep ​
STEP 4: Register for tax (see videos below)
To pay tax, you'll need to register for Self Assessment. You may also need to register for VAT.
REFERENCE: See Set up as self-employed (a 'sole trader'): step by step​ on the HMRC website
By law you are required to tell HMRC Revenue and Customs about any income that is not fully taxed, even if you are not sent a tax return.
HM Revenue and Customs
Video: Registering for Self Assessment
This video explains how to register your new business online with HM Revenue & Customs so that you can complete a Self-Assessment tax return.
Video: Your first Self Assessment tax return
This video gives you guidance on 
  • completing your first tax return, with information on who can use the service, 
  • inputting your personal details and submitting your return. 
  • checking if you need to complete a tax return, 
  • signing into your online account and 
  • checking & filing
​You can also view lots more helpful HMRC Videos on 
Keep an eye out for the regular HMRC webinars and videos which help you to understand more about how tax works and what you need to do and what records you need to keep.​
REFERENCE:
It takes a while to find all the pages which are relevant to artists - so here's a shortcut!
ADVERT

Hobby Income Tax Allowance (UK) for artists without a business

HMRC is very keen on making sure all those with UNTAXED INCOME PAY TAX

This section relates to all individuals who are generating trading income - but treating it as a HOBBY - and not declaring it for tax.
The Hobby Income Allowance

From 6th April 2017 a new allowance was introduced for those people generating hobby income.  The aim was to remove c.700k people from the need to complete a self-assessment return because they are making money from their hobby.

It also provides a benchmark for when income effectively stops being a hobby.

So long as your annual hobby income in a tax year does NOT exceed £1,000 you will no longer need to
  • declare or pay tax on this income.
  • complete a self-assessment tax return (if the remainder of their income is taxed via PAYE)​​
In the UK, a hobby artist can find out if they have to complete a tax return by completing a very simple questionnaire called Check if you need to fill in a Self Assessment tax return which is available on the main government website.
HOWEVER DON'T FORGET!
As soon as you exceed £1,000 income per tax year you need to:
  • register your activities as a sole trader business with HMRC (see above on this page)
  • register for self-assessment
  • complete the the self-employed section of the business tax part of the self-assessment return
  • PLUS the personal part if you're also employed and/or have any investment income)
  • PLUS pay any income tax and Class 2 or 4 NI contributions due
You must tell HMRC if you have:
​
​UK Non- Official REFERENCE ARTICLES about Hobby Income:
Tax-free allowances on property and trading income | GOV.UK - 
  • This measure introduces 2 new annual tax allowances for individuals of £1,000 each, one for trading and one for property income
  • These new allowances will take effect from the tax year 2017 to 2018.
  • If your annual gross trading OR property income is £1,000 or less and you’re not registered for Self Assessment, you won’t have to declare this income on a tax return.
  • However you must keep a proper record of this income.
  • (Helpsheet 325 has more information about other taxable income)
NOTE FOR INFORMATION:
​The Second Income Campaign / Crackdown

A few years ago HMRC declared a campaign to crack down on all those in the UK with an untaxed Second Income and who had  failed to declare it for taxation purposes. 
​THIS DISCLOSURE OPPORTUNITY CLOSED ON 7 AUGUST 2017

​The criteria for an individual to take part in this disclosure facility was as follows:
  • UK resident
  • Employed
  • Have an untaxed source of additional income
There was an the opportunity to make a clean breast of it and get your tax affairs up to date in return for a reduced level of penalties for not coming clean earlier. 

Terms of the Second Incomes Campaign were that once notification of an intention to make a voluntary disclosure is made, the taxpayer has 4 months to calculate and repay what is owed in unpaid tax.

​REFERENCE:​
The Second Incomes Campaign is an opportunity for individuals to bring their tax affairs up to date if they have additional income that is not taxed through their main job or another Pay As You Earn (PAYE) scheme. 

Allowable Business Expenses
​

These (generic) HMRC videos provide an accessible introduction to how expenses work if you are self-employed
Expenses if you're self-employed
  • what are allowable business expenses?
  • what expenses can you claim on your self-assessment tax form?
Simplified (flat-rate) expenses
For sole traders and partnerships which don't have limited companies as partners. Small self-employed businesses have the option to use cash basis accounting and simplified expenses.

HMRC Help pages:
Guidance on Business Use of your Home: I recommend you check the date of the Information and whether or not it has been updated. Note the Capital Gains Tax consequences.
Motoring expenses if you are self-employed
  • Tax Tip: Travel expenses for artists - In the UK you can you can only claim travel expenses: when self-employed AND for journeys wholly and ​exclusively for business purposes.
Part 4: Taxable profits
Tells you where and how to include your expenses

HMRC Help Pages:

Budgeting for and Paying your self-assessment tax bill

Completing the self-assessment return is not the end.
Now you have to pay your tax bill!

The two videos below provide help about:
  • how budget for your tax bill
  • how to pay your tax bill (I pay mine online using BACS).
These HMRC advice notes provide additional guidance about budgeting and paying self-assessment tax bills. (see below)

REFERENCE: Art Business Info Tax Tips for UK Artists
VIDEO: Budgeting for your Self Assessment Tax Bill

HMRC help pages
HMRC Paying your Self Assessment tax bill 
  • Pay your self assessment tax bill - provides details of how to pay using different methods
  • This video explains what your tax bill may include and the different ways you can pay your bill.

Visit GOV.UK to find out more about The HMRC app 

HMRC - Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) 

In December 2015 the Government announced its intention to change the way the tax system operates to make it more efficient and effective for both the taxpayer and the government machine.

The roll-out of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) ​has been much delayed - in part due to the pandemic.

The introduction of Digital Tax will
  • merge all forms of tax
  • make it real time rather than an annual event.
  • introduce a digital tax account which will replace the annual tax return form 
  • introduce quarterly reporting rather than an annual return
  • make the competition of a self-assessment return a method of checking tax rather than a means of making a tax return. 

NOTE: As of April 2019, the vast majority of businesses registered for VAT, that have a taxable turnover above the threshold level of £85,000, have been required to keep digital VAT business records and send returns using Making Tax Digital (MTD) compatible software.
IN FUTURE -  in the tax year beginning April 2024. - MTD for ITSA will be introduced for individual businesses and property landlords
  • all self-employed artists with a turnover of more than £10,000 p.a. MUST:
    • keep their records on a quarterly basis
    • submit MTD statements on a quarterly basis.
  • partnerships will join MTD for ITSA in the tax year beginning in April 2025
  • Employees and pensioners are excluded from the changes, unless they have secondary incomes of more than £10,000 per year

The information to be submitted quarterly will use exactly the same income and expense categories as those included in the current supplementary tax return pages for self-employment and property income.

Some businesses and agents are already keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the Making Tax Digital service for Income Tax.

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 - HMRC
REFERENCE: Independent Articles
​
In 2015, then Chancellor of the Exchequer, George Osborne, announced the biggest change to the UK tax system since the introduction of Self Assessment, as he declared “the death of the annual tax return” accompanied by “a revolutionary simplification of tax”. Neither has yet to be delivered but, if you look past the headlines and rhetoric, HMRC’s Making Tax Digital programme is less about making tax digital and more about making bookkeeping digital. 
The spreadsheet is dead, long live the spreadsheet | Tax Calc Blog
​I'll be researching and writing further on this matter. Subscribe to my News Blog if you want to keep in touch with what is happening - and get updates on other art business matters.
BELOW is an HMRC video about Making Tax Digital - for businesses

Inheritance Tax in the UK - Tax Incentives 

There are three schemes geared towards offering tax incentives in connection with cultural property.  

​Details of these are provided on the Art Council website.
  • Acceptance in Lieu - enables UK taxpayers to pay Inheritance Tax via the transfer of important works of art and other important heritage objects into public ownership.
  • Cultural Gifts Scheme - enables donations of important works of art and other heritage objects to be held for the benefit of the public or the nation (UK).
  • Private Treaty Sales - the purchase by a public museum or gallery in the UK & NI of an item that has been granted Conditional Exemption from Inheritance Tax - at a price that is beneficial to both public purchaser and private vendor.
ADVERT