Having been freelancing for about four years now, I’m about to complete my fourth tax return. It can be daunting when you first graduate but it needn’t be scary. I thought I’d write this post and give some pointers and help.
Please do bear in mind that I am not an accountant or a financial expert, this is just coming from my own experience of doing my taxes for the past few years. There are lots of different ways to do your taxes, this is just what I do on a yearly basis.
The very first thing you need to do (if you are earning money from gigs and private teaching) is register as self-employed. This is straight forward but very important as if you don’t pay your National Insurance contributions, it might affect your state pension. So head on over to the relevant gov.uk page for registering as a sole trader and fill in the forms. Simple!
Ok, done? Now for the slightly time-consuming bit.
You need to keep a record of your business income and outgoings. I like to keep a file for each year, with a divider for each month, fees from a gig? Keep a note. Had to buy food at a gig? Keep the receipt and make a note. I also make sure to file away any contracts, pay & display tickets, restaurant receipts, invoices (sent and received) and anything I receive from HMRC in there, which makes it much easier to compile my accounts for the year.
As a very important side note – in order to complete your tax return you will need a P60 form from any employment you’ve undertaken with an organisation, do you have a part time job in a bar/shop/school? Without these, your accountant won’t be able to complete your tax return and you’re kind of stuck.
Got it? Awesome.
Let’s say you need to drive to your gigs. For each gig you do, make a note of how many miles you have travelled, maybe keep a monthly total.
For the first 10,000 miles of the year, you can charge 45p/mile as travel expenses, anything after that can be charged at 30p/mile. This theoretically covers fuel, insurance, car repairs and servicing, so the mileage should be the only car related expense in your records.
What about music, strings, concert clothes? Yep, keep the receipt in your folder and add it to your expenses when compiling your records. Concert clothes are a little tricky as they should only be for concerts, so if you intend to wear it on a normal day you shouldn’t really include it as an expense. If in doubt, keep the receipt and ask your accountant. I might ask mine about costume jewellery…
Then, at the end of the tax year I make a spreadsheet, one column for the type of expense (e.g. sheet music) then in the column next to it I’ll put the amount to the nearest pound (e.g. £15). A few columns later I’ll do a similar thing for income (e.g. Sheffield Wedding 10th October – £200). Then I’ll go chronologically down the spreadsheet in months.
Each month needs total values for Income, Expenses, PROFIT (Income minus expenses) and Total Miles Travelled.
Once you have compiled all twelve months – give yourself a big pat on the back and pour yourself a glass of something – you can work out your TOTAL Income, Expenses, Profit, Miles Travelled, and Mileage. If you have geeky tendencies like me you can also work out monthly averages by dividing the total values by 12. So you have a monthly income to aim for each month.
Press save, take to your accountant and the rest should sort itself out. You can also put accountants’ fees on your expenses and do bear in mind that many accountants offer cheaper services the earlier you see them. So a tax return in May or June might cost you £100 but leave it till January and you could be staring down the nose of around £250. Being organised pays off!
And that’s it! If there’s anything I haven’t explained very well do let me know in the comments and I’ll try and be more clear.
Also, it’s the time of year when students are graduating! Congratulations to everyone graduating from RNCM in particular – this post is written with you in mind. If you have any questions about life in the ‘big wide world’ so often talked about at college, leave me a comment and I will do my best to help.