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Handle Freelance Tax

by Robert Breckman
updated July 2005

Robert Breckman, the principal of Breckman and Company, Registered Auditors and Chartered Accountants, writes, lectures and has appeared on television and radio discussing the arts and finance. He was the first chartered accountant to be appointed to the drama panel of the Arts Council. He has been voted "leading showbusiness accountant" by The Stage Newspaper. His practice specialises in the arts and media and can be contacted at Breckman & Company, 49 South Molton Street, London W1K 5LH. Telephone: 020 7499 2292, Website: www.breckmanandcompany.co.uk

1) Prepare your accounts

As a general rule if you work backstage in the theatre you are taxed on a Schedule D basis; ie: no tax is deducted at source as with PAYE. You only have National Insurance Class 1 deducted at 11% of your weekly salary from £94.01 up to £630 pw, and 1% thereafter. However you will have to prepare annual accounts usually going from the date you started in the profession to a year hence. Your year end does not have to be the tax year end, namely April 5th. For example if you commenced work as an actor at the beginning of September you can take your accounts to the end of the following August.

You will have to make contact with your local taxman who will give you a form CWF1, which you have to complete and return. In exchange you will be given a ten figure tax reference number and this is your 'Schedule D' number. If you fail to register yourself with the taxman within three months of the commencement of your business you will be fined!

Your accounts have to show the total income received and detail the various categories of expenditure. In principal the guidelines for these are that they must be "wholly and exclusively incurred in the performance of your work". You should endeavour to keep receipts for all these expenses and will have to do so for six years thereafter in case the taxman asks for them. If you do not have a receipt for a particular heading of expenditure you should make an estimate but make sure it is well based. For example you may not get a receipt for The Stage, but you know it costs £1.10 and making such an estimate should be acceptable to a taxman.

2. Complete a tax return

In the tax year ended April 5, 2006 you are entitled to £4,895 tax free and then you will be taxed on the first £2,090 at ten per cent, the next £30,310 at 22 per cent and the balance at 40 per cent. Irrespective of when your own Schedule D tax year ends you will have to complete a tax return for the year ended April 5th into which your annual accounts can be slotted. This tax return has to declare all your dividends and interest received and pensions payments made. You have to file your tax return by the 31st January following. If you do not you are fined £100 which increases as the omission continues.

3. Estimating income figures
Tax is payable on January 31st and July 31st. The taxman will assume that your current year's net income will be exactly the same as the previous years. So he is able to estimate your tax payable in advance, which will be revised when he gets the actual figures. If you have overpaid you get a refund of tax and interest. If you have underpaid, that amount is added to your next January 31st payment.

The tax system is somewhat complex! It can be a minefield if you put a wrong figure into your accounts or a tax return. You could be open to an investigation, which is stressful to say the least. There are now numerous penalties in the tax legislation. It would be advisable to obtain the services of accountants who specialise in the arts.

Links

Inland Revenue

Inland Revenue Advice/Help for Actors and Entertainers