Post image for The Truth About Tax & Artists | Plus 10 Top Art Tax Saving Tips that will save you MONEY

The Truth About Tax & Artists | Plus 10 Top Art Tax Saving Tips that will save you MONEY

by Helen Aldous

The tax situation for artists can be confusing, especially if you are only making a small amount of money on the side from your art sales. It’s also difficult to know what to do when you are starting to sell work as well as working in a full time job. I have had a few emails from readers asking questions about this confusing area. As I’m not an accountant {and find it all confusing myself} I have roped in the help of someone who does know, my accountant, who keeps my finances on the straight and narrow.

In this post, Chartered Accountant, David Cramp, answers a reader’s question with regards to the tax situation in the UK and how it relates to artists.

Questions Questions…

I’ve never sold anything yet as an artist and I work full time. I want to start selling my work and eventually give up the day job!

Now, I know that HM Revenue & Customs don’t like claims from sole traders that consistently don’t make a profit, and it could take years to build sales up. If I claim for the high costs of art materials, as far as I’m aware, if I haven’t made much money, the tax rebate comes off tax already paid from my full-time employment. Now whilst this is a good way to supplement the costs of being an artist, I’m presuming it won’t wash with them forever.

So I have 3 questions…

1. Do I need to declare the sales when I start selling my work?

2. At what point will HM Revenue & Customs not accept my loss claims?

3. Do you have any tips or advice about tax/declarations or claims for artists?

And Answers…

If I were dealing with your affairs, I would firstly want to examine your ‘business’ and ensure that it meets HM Revenue & Customs’ definition. But as you have not specifically asked this question and it sounds as if you accept a trade will exist, my guidance assumes you have passed this ‘test’, (I would advise that you seek guidance on this if the business goes ahead though).

1 – Do I need to declare the sales when I start selling my work?

The answer to your first question is yes. Whether or not you are also employed, if you have a sole trader business you will need to declare the results of the business to HM Revenue & Customs. You will, however, continue to pay PAYE through your employment and, depending on the results of your business, pay any remaining tax and NI through the self assessment system i.e. after submitting a Self Assessment Tax Return.

You can register as self employed with HM Revenue and Customs either online at www.hmrc.gov.uk or by completing and submitting a form CWF1.

Normally, you would also begin paying Class 2 National Insurance contributions, but as your earnings are likely to be under the Small Earnings Exception level (currently £5,315 pa), you do not need to pay them and you can apply for this exception using form CF10.

2 – At what point will HM Revenue & Customs not accept my loss claims?

But, as you suspected, HMRC do have an issue with loss-making businesses, and in fact, the trade must be commercial and aim to generate a profit. If it isn’t, you cannot offset the loss against your employment income. Instead, it can only be offset against any future profits your business makes.

As for your costs, you should only recognise the cost of materials you actually use in the year. For instance, if you buy 20 canvases for a total cost of £400 and spend £250 on paints, but at the end of your year you’ve only used half of them, then you should only recognise costs of £325; not £650.

Another point to be aware of with regards to ‘stock’ is if anyone ever commissioned you to paint a piece and agreed a price, then you should recognise some of the sales income according to the painting’s completion. So if they agree a price of £900 and it was a third complete at your year end, then you should recognise £300 in your sales figure. Stage payments can further complicate this calculation, as I am sure you can appreciate.

3 – Here are 10 tips to help you save or defer tax:

  1. Use of home for business – assuming you work from home, you will be able to put through a portion of the running costs of your home
  2. Averaging – a particular concession for your industry which may help to ‘smooth’ fluctuations in your tax bill
  3. Motor expenses – if you use your car to make business trips, you could claim mileage expenses at a rate of up to 45p per mile
  4. PAYE coding – make sure your Notice of Coding is right when HMRC send it to you and your code could even help ease the burden of your tax bill by collecting any additional tax via your employment income; rather than paying the tax in one lump sum
  5. Transfer assets to the trade – assets you bought personally for private use before the business began, but were then subsequently transferred into the business, (such as a computer), could attract tax relief via Capital Allowances
  6. Submit paperwork on time – registering for self-employment late, submitting returns late or making payments late are just a few of the events that can lead to penalties and interest. So ensure you are well prepared and are aware of the deadlines you need to meet
  7. Spouses – if your partner is genuinely assisting in the business, you could pay them a wage
  8. Pre-trading expenses – keep receipts of any business expenses you incur prior to the business starting to trade, as you may be able to get tax relief for these
  9. Record keeping – keep accurate, clear records. Not only will this hopefully ensure you claim everything you are entitled to but is also a HMRC requirement and severe cases can lead to fines
  10. Paperwork – retain all of your receipts. Again this will hopefully ensure you claim everything you are entitled to and is also a HMRC requirement

Please be aware that there are various requirements to meet before making use of some of these tips; therefore please seek professional advice before implementing them. Besides, it is important to seek professional advice during the early stages of a business. A professional will review and ensure for example, that you are claiming all of the available expenses, your tax position is efficient and you are meeting your statutory requirements.

This response is based on the details you have provided and is intended to inform rather than advise and is based on UK legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact TaxAssist Accountants before implementation. If you take, or do not take action as a result of reading this article, before receiving TaxAssist Accountants’ written endorsement, TaxAssist Accountants will accept no responsibility for any financial loss incurred.

If you would like to discuss this article or any other matter further, please feel free to contact your local TaxAssist Accountant on 0800 0523 555 or email taxquestions@taxassist.co.uk. TaxAssist Accountants have more than 190 offices across the UK, providing tax and accountancy advice and services purely to small businesses.

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David Cramp is a Chartered Accountant with over 16 years post-qualification experience serving a broad range of clients in the UK.

TaxAssist Accountants is a local business, based in Mirfield providing tax and accountancy advice and services purely to small businesses.

Image released under creative commons by Kevin Dooley



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