FinanceIt’s important to set yourself up with a good financial record keeping system that you keep up to date. I always recommend that musicians have 2 bank accounts one for their personal income and expenditure and one for their business expenses and income. This way it keeps things clear and also helps you to see that you are a business, regardless of how small or large that income is. This is particularly important if you are getting into recording and selling a CD or receiving gig fees and paying out musicians as you need to be able to run a separate budget for these activities.
What are financial records?
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Annual accounts
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Income and expenditure records
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Receipts and invoices
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Annual Self assessment tax form
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Bank records
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Credit card records
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VAT
Self employed or employed?
You can be employed in one job and self employed in another.
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Inland Revenue Leaflet IR56 employed or self employed?
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You can register as self employed by calling the Helpline for the Newly Self-Employed on 08459 15 45 15. www.inlandrevenue.gov.uk/startingup
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When you are self-employed, you’re responsible for paying your own tax and National Insurance contributions. Keeping full and accurate records from the start will make it easier to work these out. Broadly speaking, after your first year in business, the tax you have to pay will be based on your profits for the previous tax year.
National Insurance contributions
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Most self-employed people pay two classes of National Insurance contributions
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Class 2, paid at a weekly flat rate currently £2.00 a week, which count towards Incapacity Benefit, state retirement pension and Bereavement Benefit.
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Class 4, paid on profits and gains at or above a set level. If your profits are over a certain amount, you may have to pay Class 4 contributions as well as Class 2. You will normally be asked to calculate your Class 4 contributions when you fill in your tax return.
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Exempt and special groups Some people are exempt from Class 2 contributions. These include anyone with a Small Earnings Exception certificate.
Tax year
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A tax year runs from 5 April to 6 April
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If you return your self assessment form by 30 September the tax office will work out your tax bill.
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After the first year the tax office will ask you to make some payments on account for the next year’s profits. These are based on the previous year’s accounts and you can ask them to be reduced.
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You need to register within 3 months of finishing college.
VAT
Should you register for VAT? You will probably have to register for and charge VAT if
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Your taxable turnover reaches,or is likely to reach,a set limit (over £55,000 in 2002)
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You have taken over a business as a going concern,or
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You acquire goods from other European Union countries.
For more information call the C&E National Advice Service (0845 010 9000)
Voluntary VAT registration
Why would I want to register for VAT if my taxable turnover is below the threshold? If your taxable turnover is below the registration threshold you can apply for ‘voluntary registration’, if you can prove that what you do is a business for VAT purposes. There are advantages and disadvantages to registering voluntarily. Benefits include increased credibility for your business and, if your business makes standard or zero-rated supplies, you’ll be able to claim back input tax