Tax laws are complex and often change. It is advisable to employ an accountant or professional book keeping services. In the early days, most accountancy firms are suitable, but you may wish to consider employing specialist music industry accountants as your career develops. Specialist advice and service is vital when touring abroad or generating large sums of international income.
The two main tax codes for musicians are Schedule D and E.
Schedule E is where tax is deducted at source or often referred to as ‘Pay as You Earn’ (PAYE). Under this classification your employer sends the money to the Inland Revenue before you get your share of what is left (if for instance you formed a limited company, you would become employees and decide on a schedule E route).
Schedule D is where you receive the gross income and account to the Inland Revenue against profit and loss on income generated in a financial year (often running from April to April). Current changes in taxation include the introduction of ‘Self Assessment’. It is worth taking advice from the outset when considering self-employment as a musician.
TIP!
Save a reasonable reserve to pay tax bills that may arrive up to two years into your business start-point. There is a great tendency for musicians to spend income as it arrives in the belief that the next pay cheque is always around the corner. You will find many well know artists who support this comment; some are still working hard to pay tax debts a decade old!
Deductions
Allowances are the amounts you are allowed to earn before being taxed and are set by the government each budget. Expenses can be deducted from your overall profits before tax is calculated. These are items or services paid for (and receipts kept) without which you would not be able to carry out your work.
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