Tax: what you need to know as a working self-employed actor
Dealing with HMRC can be a daunting experience for self-employed performers and theatre workers. Paul Clayton explains why careful preparation and finding the right accountant are essential to ensure the process is as straightforward as possible
At drama school I spent six weeks rehearsing Gorky, five on Ibsen and a mercifully short three weeks on Chekhov. Since then, in 40 years working as an actor, four weeks in an unremarkable early-1980s production of The Cherry Orchard have been my only contact with these heavyweights of drama.
Though my training aimed to improve my stagecraft, we never looked at the many other things that are an essential part of my daily life as an actor. Every year since 1978, I’ve had to complete a tax return. In fact, I have absolutely no idea how to complete one and have relied on an accountant to do it for me. At drama school, we had no tuition on the more practical aspects of working in the industry.
Having had the opportunity to visit many drama schools recently as part of their professional development curriculum, I know that has changed now. But I do wonder just how practical these sessions are. Does anyone ever show them what a tax return looks like – or how to complete it?
Find the right accountant
Speaking to graduates about the need for an accountant, many of them show disbelief. Today’s drama graduates are increasingly realistic in their objectives. The common answer I receive is: “I won’t earn enough in my first year to need an accountant.”
But that could be the first misstep in running your business. It’s a much-needed nod to your prospects as a graduate that you are likely to do a lot of work other than acting for several years. Not all of this work will be on a self-employed basis, and you may find yourself working on several different tax codes and in different situations regarding the tax that is due.
With the right tuition, it is perfectly possible to collate all these different sources of earnings together yourself and complete your tax return. But it’s easy to make mistakes – exactly the sort of thing that the eagle-eyed bureaucrats at Her Majesty’s Revenue and Customs are looking for. Paying tax is a moral responsibility and it’s a legal requirement to make sure that you pay what you owe. That said, it’s also essential you don’t pay any more than you should, so getting the right professional advice is absolutely vital.
Many graduates tell me that their parents have an accountant. They may think of that as a badge of honour. I know I did. My parents ran a small corner shop in a Yorkshire mining village and their accountant took me on for the first two years of my working life as an actor. But he was no specialist in the world of entertainment. As a result, I had poor guidance. I ended up paying a lot of tax in the first 18 months of my acting career – tax that should have been defrayed by expenses. He claimed some things for me, but not enough. It took me several years to recover from those early tax bills.
Now, I make sure that my accountant saves me more in tax than he charges me in fees. It’s a necessary part of my expenditure as an actor. There are lots of specialists out there who have actors on their books. Getting one of them to represent you may be the best way of coping with the increasingly complex field of legislation and the myriad requirements placed on you as a taxpayer. With the impending threat of quarterly digital returns, knowing exactly what is going on in the world of tax is vital to your financial success as an actor.
Register as self-employed
If you’re starting out as a graduate, then it’s important to register as self-employed within six months of the end of the tax year in which you began working. A graduate leaving drama training this summer should have registered with HMRC before the end of October 2019.
You can, of course, do it earlier. Even if you do just a single day’s work on a self-employed basis, you will need to have registered. It’s likely that during your first year in the world of work you will do many other jobs that require you to pay tax on a PAYE basis. On these jobs, it will be your responsibility to contact HMRC and get the correct tax code for the work. This will be easier if you have already begun a relationship with them and registered. Failure to get the correct tax code may lead to your valuable part-time job being taxed at a higher rate than necessary and render it less than viable as a source of income during the days when you are ‘resting’.
It might be a good idea to speak to your bank and open a separate account for your business. This effectively separates your personal affairs from those of your business and makes record-keeping very straightforward. Have all your salary paid into this account from whatever source and take out a set amount each week or month for your own personal expenses. You can pay professional expenses from this account and your bank statement will then act as a very effective record for tax purposes. In future, digital accounting software will link to your bank account automatically. It is therefore a good idea to have a separate business account to avoid a large number of private items being recorded in your business accounts.
Keep your receipts
You need to make sure you have a record of any expenses you will be claiming against tax. Software is now widely available to photograph hard-copy receipts and keep them as digital records. Equity, Spotlight or a reliable actors’ accountant can provide a comprehensive list of just what you can claim.
Barry Kernon, a consultant with the media group at HW Fisher and Company, says that in this area alone, an accountant who really knows his stuff can save you money.
He adds: “Remember: an accountant’s not only saving you money, they’re saving you the time it would take you to complete your own tax return effectively.”
Kernon is one of a number of accountants who donate their time to Tax Aid, a charity that helps people on low incomes when they get into difficulties with their tax affairs. It helps low-earners to understand the bits of the tax system that apply to them (safely ignoring the confusing 98% that don’t), pay only the right amount of tax and help them resolve crises when things go wrong.
Don’t think of Tax Aid as a replacement for an accountant, but it can help if you are on your own and in difficulties.
There is also a school of thought that you’re much less likely to be investigated by HMRC if your return has been prepared by a reliable, reputable agent, though that’s not guaranteed. They do make random checks.
Check if your other work is taxed at source
Many actors have other jobs that cannot be fulfilled on a self-employed basis. If you are invoicing, you must state on that invoice that you acknowledge responsibility for paying your own tax. Promotional work, event work and work for agencies has recently come under the HMRC spotlight and agencies should now deduct tax at source.
In March 2016 HMRC stated: “Demonstrating and merchandising work is often undertaken by actors, actresses or models. When doing so, they are not rendering their services as actors, actresses or models and so neither the exceptions in the agency provisions (see ESM2008) nor the Administrative Practice at EIM03002 apply.” This basically means you now have to be taxed at source for most work in the promotional market.
Tom Eatenton, chief executive of promotional agency KruLive, is very keen that actors are aware of this.
“We as an agency have the responsibility of paying tax for the actor,” he says. “In the case of many agencies, this may delay payment, but at Kru, we know how payment on time is vital to actors taking short-term promotional jobs. We now guarantee that if payments are late as a result of any mistakes made by our agency, we will offer an additional goodwill payment.”
If an agency is paying you but not deducting tax at source, then this money should be declared on your self-employment tax return – and HMRC should also be made aware of its omission.
Eatenton adds: “It really helps us if the actor is aware of the situation, approaches us with the correct tax code, and helps us complete the paperwork effectively. We use a huge number of actors each year and are here to make the process easy, but it may start to become easier for us to use people who are already registered with us simply in administrative terms. I would hope that is not the case, given that we trade on the many varied and exciting talents that are out there.”
It’s an increasingly tricky subject. With constantly changing tax requirements made necessary by the new gig economy and companies such as Uber and Deliveroo, actors whose working lives consist of varied employment have to keep up with the regulations.
Success as an actor is a balancing act, of which performing is just one side of the seesaw. Benjamin Franklin’s advice applies to our lives as actors too well. “In this world, nothing can be said to be certain, except death and taxes.”
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