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

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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How to find the ideal buyer for your art : Don’t fish for trout when you want killer whales.

I received a question from a reader the other day and it made me stop and think. She wrote:

I am trying to learn how to sell my art online and not having any success. The advice I read says, “find your target market” and “offer a solution”.

It might as well be Greek because I have no idea what they mean by those phrases.

I don’t have a “target market”. I am willing to sell my art to whomever is willing to buy it. As I’ve only sold a couple of things, I can’t come up with a “type” of person who buys my art. And it would be arrogant of me to decide I only want to sell to a certain kind of person, wouldn’t it?
As for “offer a solution”, my first reaction is “for what?” What is the problem to which I’m supposed to offer a solution? In my mind, I’m the one with the problem.

It’s easy to give out glib advice about working out your “target market”, “solutions” and “niches” but what does this actually mean in the cold hard light of the real world outside the rarefied atmosphere of a marketing agency, especially if you are new to selling your art? How do you find your ideal buyer, especially if you haven’t sold much yet? Well basically, ignore all the “target market”, “niche” buzzwords. A lot of it is down to common sense.

And so, as is my way… a story…

The gnarly fishermans tale…

A gnarly fisherman {with a beard} sets out bright and early for a days catch. He would dearly love to catch a killer whale. {I don’t even know if its possible to catch a killer whale and it’s technically not a fish but just bear with me on this one}. However, instead of heading to the ocean where killer whales abide, he heads for his local trout pond and casts his line, carefully baited with a lovely killer whale treat. He spends 12 hours in the freezing cold waiting to catch a killer whale but is sorely disappointed with only catching one solitary trout {the only strange trout in the pond with a taste for killer whale bait}. He heads home dejected and pretty much empty handed.

The next day he heads out bright and early and decides to head for the ocean instead. He has his tasty killer whale bait and extra strong rod. Within minutes he is hauling killer whale after killer whale into his boat. He’s in the right place with the right bait. Catching them is easy… He heads for home after a few hours happily laden down with 500 tonnes of Orca for his freezer.

Fish in the right place…

So basically, when selling your art, its the same thing. You have to fish in the right place with the right bait to be successful.

So, for example. If you specialise in delicate watercolours of Cornwall there is no point in spending a lot of time promoting them on a site like Deviant Art which specialises in gritty urban contemporary graphic based work.

Much better to seek out more relevant opportunities with an audience that more closely matches your work and concentrate your efforts there. You may find a bricks and mortar gallery that specialises in Cornish watercolours and caters to the tourists who come to Cornwall and want to buy a piece of art to remind them of the journey, or you may find a site online promoting Cornwall which you could advertise your work with. You would be reaching your target market.

Conversely, If your art is portraits of Death Metal stars painted in your own blood you may have a very limited audience in the Cornish Gallery. Sales will be slow.

And bait your hook right…

So what about the “offering a solution” bit? Is it possible for an artist to do this? Well yes. The artist who paints death metal stars in blood is the perfect solution for a death metal fan with a love of art, a bare wall and a desire for something to fill it.

The Cornish artist who paints the sea is a perfect solution for the holidaying couple who want to capture the magical essence of the Cornish coast back in their landlocked inner city flat.

If you place the right art in front of the right people you have the right bait on your hook and you are highly likely to make a sale.

So do I have to change my art to fit?

No. This is the great thing about the internet. Your potential audience is so large that it’s highly likely that whatever you create there is a group of people who will love it. Its just a case of finding the right outlet.

Think like a fish…

So how do you find the right outlet for your work? With a bit of market research that’s how… You need to THINK like your quarry.

So to sell Cornish art put yourself in the shoes of the couple heading there on holiday. If you were heading to Cornwall and liked art what kind of sites would you look at? What galleries would you visit? Where would you stay? What would you do? Where would you search online?

Thinking like this will help you outline a marketing strategy of which galleries to approach, what to include on your website and which marketing methods to employ.

Your online marketing mix may include

  • E-mail newsletters
  • Pages on your site of relevance to your target audience
  • Relevant Blog articles
  • Discussions on forums of relevance to the target audience
  • Posting your work on relevant showcase sites.
  • Interaction through Social Media sites popular with your target audience

You offline marketing mix may include

  • Contact with galleries which deal in the right kind of work
  • Coverage in local media
  • Attendance at art and craft events in the relevant area

Basically, now you have identified your target audience you know where to fish.

If you haven’t sold any of your own work yet, look at what other artists are doing and what sells. Research research research is the key.

Line up all your ducks…

If you get this right, making sales will be much easier. If you get it wrong you will waste a horrible amount of energy on something that is never going to fly so it’s really important to do your homework.

With selling art, online and off, you need to line up all your ducks in a row to make sales easier.

Do you have a question about selling art? Mail me here and it could make it into a post, probably involving an obtuse story about animals.

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