Don’t be overtaxed
If you work from home and you ask HMRC how much you can charge for using your home as an office, you’ll get one answer: £2 a week. That’s a little over £100 a year. Without the advice of an accountant that is all you’d be able to offset against tax.
The reality is many of us can charge substantially more than that. HMRC has oversimplified it to try to stop people claiming what is rightfully theirs. “This is the best example of why you should use an accountant,” says tax expert Dave Morrison. “How much you can claim varies depending on the size of your house and how much of it you are using for work and whether you are using it exclusively for work. If you are using a quarter of your house for work then you can claim a quarter of the running costs.”
Dave is a former MOBO-nominated DJ and music promoter who has returned to accountancy. He specialises in entertainment clients and covers not just actors but all the trades involved with film, TV and theatre as well as musicians and other media types. He’s a partner at Nyman Lisbon Paul but is also on the entertainment and media group at accountancy body the Institute of Chartered Accountants in England and Wales (ICAEW). He knows his onions.
Dave is swift to point out that someone converting a room at home into a studio, for example, needs to be careful not to put the cost of the conversion against the business, otherwise the house will become liable for capital gains tax when sold.
Depending on what job you do, there are loads of things you can claim as legitimate business expenses. Actors, for example, can claim theatre and cinema tickets; musicians can claim CDs or music downloads or the cost of concert tickets. But Dave warns you not to try it on – you cannot take your spouse to the theatre or concert and claim for two tickets.
The thing about tax and accountancy is that the rules are not fixed. Apart from changes announced in budgets each year and tweaks to legislation or to regulations, UK legislation is also shaped by individual court and tribunal rulings that can radically alter the way everyone has to do business.
There are major cases – one at present is looking at ITV services and how TV workers should be treated for National Insurance. There are also tax raids on suspected dodgy accountants, sometimes leading to convictions and sometimes to HMRC getting egg on its face. A high-profile raid in 2010, for example, targeted an accountant, Christopher Lunn – he had a lot of entertainment clients whose affairs were thrown into disarray. People such as Dave have to keep abreast of all these.
There are also specific rules for different sectors, with certain grades of contractors having to comply with fixed accounting rules.
Then there are decisions about whether or not a freelance might benefit from trading through a limited company rather than as a sole trader. Some firms, such as the BBC, quite like paying freelances through limited companies, others less so.
Accountants have different opinions on the income level at which it becomes worthwhile for a freelance to pay the extra costs of running a limited company. Their advice is based on an individual’s circumstances; it’s not a tick-box exercise.
The key thing is to take your accounts and book-keeping seriously and to pay a qualified and regulated accountant for the best advice you can afford. It may seem taxing, but it’s better than being overtaxed.