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Tax and the artist ll


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Tax and the artist ll

  1. 1. Financial Fundamentals for Creative Practitioners • Jane Norton FMAAT is the director of Norton Accountancy Ltd • Jane was the former trustee of Spike Island for 5 years • We have 3 offices (Bristol, Cardiff and Newport) 25 staff and over 2000 clients • Norton Accountancy acts for a large number of artists, musicians, writers and designers. We are very well placed to understand taxation issues for creative practitioners
  2. 2. Financial Fundamentals for Creative Practitioners - Summary So you’re thinking of starting your own business? 1) Methods of Trading 2) Business Plan: A necessity 3) Funding Requirements 1)Approaching an accountant, bank or solicitor 5) Do your research 6) Registering your business with the Revenue, Companies House etc 7) Bookkeeping 8) The importance of cash flow 9) Profit and loss 10) Annual accounts, tax liability and national insurance – when are they due?
  3. 3. Financial Fundamentals for Creative Practitioners - Summary 11) Employing staff 12) Making your business succeed 13) Subsidising your self-employment with income from other sources such as part-time PAYE jobs 14) Registering for VAT 15) National Insurance and how it works 16) Premises 17) Tax Credits 18) Additional information
  5. 5. Your Business Plan No business can survive without a Business Plan. Keep it simple and to the point. A good business plan needs no more than ten pages for a start-up business. What should you include? Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Front Cover A Summary of your business proposal (a paragraph will do) and what funding you will require About you, almost like a CV with your strengths and why you think you have what it takes to succeed About the business in more detail. Market research you have done, examples of competitors, details of your target customers Projected profit and loss accounts Cash flow to illustrate to the bank when and where you need funding. Funding requirements Any other evidence to support your plan
  6. 6. Funding Here is your opportunity to say exactly what you need for example: “UWE Ltd require a loan of £5,000 to purchase equipment repayable over three years and an overdraft of £5,000 until cash flow settles down” Make sure your funding requirements agree with your cashflow. Here is an example of Company A which expanded too quickly: Company A’s sales were £1,000,000 in the first three months. Their customers took an average of 90 days to pay. Their purchases were £500,000 and they had no credit rating so they had to pay in advance for their supplies. Although this company made £500,000 profit in three months the business failed as without funding they had no cash.
  7. 7. Appointing Professionals • • • • • • • • • • Take advice from the appropriate professionals Many banks offer a first meeting without charge Arrange a meeting with an accountant to help with your business plan and to ensure that your figures work Be clear with professionals about what you want them to do Some legal firms offer free business advice Financial advisor if you want a mortgage Health and Safety experts Food hygiene specialists Insurance Advisors Employment law specialists
  8. 8. Research • • • • • • • • • • Business link Citizens advice Princes Trust Enterprise Programme for advice, business skills training, funding and mentoring Possible grants which help to fund new businesses HMRC Advice Starting a Company Your business idea 21 things to research before starting a business The Chambers of Commerce business advice
  9. 9. Registering your Business • • • • • • Incorporate your business with Companies House – You can do this online but I would generally advise you seek professional advice If you start a new limited company you must tell HMRC within three months by completing and send in form CT41G (New company details) to HMRC. HMRC sends a newly formed limited company an 'Introductory Pack' within six weeks of being told by Companies House that a new company exists. This pack contains explanatory notes and forms CT41G (New company details) and CT41G (Dormant company insert It's important to complete these forms as HMRC uses the information you provide to work out your Corporation Tax paying and filing deadlines. They'll send you form CT610 (Corporation Tax Important Dates) to confirm these deadlines. See You don’t need to register with the registrar of names You may need to register with organisations for legal reasons depending on the business trade e.g. accountants, lawyers, doctors etc
  10. 10. Bookkeeping The type of bookkeeping records you need to keep will vary according to the type of business you have. Look into the different software options that are available to you. •Excel – good if well kept for business who are not VAT registered •Cashflow Manager - a brilliant programme for businesses who are VAT registered and need more detailed bookkeeping (about £150 +VAT) and easy to use •Quickbooks - can be difficult to use unless you are a bookkeeper •Sage – brilliant pro market leader but overkill for small businesses. Good Sage Bookkeepers charge £30 per hour indicating that it is a complicated programme.
  11. 11. The Importance of Cashflow PROFORMA CASH FLOW PROJECTION FOR ……………… APRIL Bal b/f Capital Introduced 0 1000 JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH -5335 2463 7347 16545 27543 32077 43759 55957 59291 70989 82687 10000 11500 12000 13500 14500 14500 14500 14500 14500 14500 14500 2000 2300 2400 2700 2900 2900 2900 2900 2900 2900 2900 1000 6665 16263 21747 32745 44943 49477 61159 73357 76691 3666 1833 1833 1833 1833 1833 1833 1833 1833 1833 Sales Vat Total available MAY FOR Y/E ………………….. 88389 100087 Less Expenses Purcahses Premises Costs 1833 1833
  12. 12. Profit and Loss PROFORMA PROFIT AND LOSS ACCOUNT FOR …………………………. for the 12 months ended ………………… example £ Income 175,000 less cost of sales Purchases -22,000
  13. 13. Record Keeping for Self Assessment • There are minimum periods for which you must keep records, e.g. six years for VAT or five years from the latest date for filing your return for Self Assessment. You may need to look back at them yourself, and HMRC may need to see them if there is any question over your tax. • You can claim expenses that are wholly & exclusively for business use. These expenses vary from trade to trade. • Examples of allowable expenditure:- Materials Research materials Photography / video expenses Studio expenses Telephone Protective clothing Proportion of home studio rent & rates Printing / Postage / Stationery / Cleaning Capital expenditure on equipment Motor expenses Exhibition expenses Insurance
  14. 14. Annual Accounts • Your annual accounts help a business to analyse it’s activities during the past financial year • When you form a limited company, you’re obliged by law to file annual accounts with Companies House • Most small companies will qualify for reduced disclosure in their accounts, and therefore the accounts that are filed at Companies House, often only show a balance sheet and some notes (‘abbreviated accounts’). The first set of accounts will need to be filed with Companies House within 21 months of the date of incorporation. Thereafter, they will need to be filed within 9 months of the ‘accounting reference date’ (effectively the company’s year end), unless the accounting reference date is subsequently changed. • There is no fee for filing your Annual Accounts with Companies House but you do have to pay for filing your Annual Return.
  15. 15. Tax Returns • If you are self employed each year you must submit a tax return declaring your income on paper by 31 October or online by 31 January after the end of the tax year. • The tax year runs from 6 April to 5 April so if you trade in the years 6 April 20X0 to 5 April 20X1 your tax return for 20X1 will need to be submitted online by 31 January in 20X2 and all the tax due needs to be paid by then. The same applies to any losses you wish to claim. • If you fail to submit your tax return by 31 January following the year of trade you will get an automatic £100 penalty. • Limited companies must pay corporation tax. You must file your company or organisation's Company Tax Return within 12 months of the end of your company or organisation's Corporation Tax accounting period. If your company or organisation has taxable profits of up to £1.5 million, you must pay your Corporation Tax by the normal due date, which is nine months after the end of your Corporation Tax accounting period. For example, if your company's accounting period ends on 31 May, your Corporation Tax payment is due on or before 1 March the following year. •
  16. 16. How Tax Affects You Income Tax allowances 2013-14 2012-13 2011-12 Personal Allowance (1) £9,440 £8,105 £7,475 Income limit for Personal Allowance £100,000 £100,000 £100,000 Personal Allowance for people aged 65-74 (1)(2) £10,500 £10,500 £9,940 Personal Allowance for people aged 75 and over (1)(2) £10,660 £10,660 £10,090 Married Couple's Allowance (born before 6th April 1935 but aged under 75) (2)(3)(4) N/A N/A N/A Married Couple's Allowance - aged 75 and over (2)(3) £7,915 £7,705 £7,295 Income limit for age-related allowances £26,100 £25,400 £24,000 Minimum amount of Married Couple's Allowance £3,040 £2,960 £2,800 Blind Person's Allowance £2,160 £2,100 £1,980 Rate 2013-14 2012-13 2011-12 Starting rate for savings: 10%* £0-£2,790 £0-£2,710 £0-£2,560 Basic rate: 20% £0-£32,010 £0-£34,370 £0-£35,000 Higher rate: 40% £32,011 £150,000 £34,371£150,000 £35,001 £150,000 Additional rate: 50% £150,000+ (45%) £4,250 £150,000+ £150,000+ £4,250 £4,250 Rent a Room Limit
  17. 17. Employing Staff • • • • • • • Research the implications of employing staff. See http:// and Set up a PAYE scheme. See http:// and Don’t use freelancers or self employed “contractors” without taking professional advice Make sure you have adequate employers liability insurance Give staff clear job descriptions Give staff a contract of employment within two months of their start date Know your responsibilities regarding sick pay, holiday pay, maternity pay, when and how you can dismiss staff
  18. 18. Making a Success of your Business • • • • • • • Pay attention to your business plan – if your plan doesn’t work your business will fail Check your bank weekly and ensure your bookkeeping is up to date Ensure you don’t sign anything without reading it first and if in doubt get all legal contracts checked Always deliver to customers what you have promised Don’t bleed the company dry Pay serious attention to cashflow The more effort and energy you put into your business the more you are likely to succeed
  19. 19. Subsidising your Self-employment with income from other sources • • • • You can receive up to £4,250 tax free with the rent a room scheme Work part time Tax credits www.hmrc/taxcredits for over 26 year olds Look at maximising the benefits of your business – i.e. teaching about your trade
  20. 20. VAT • You will need to register for VAT If your turnover of VAT taxable goods and services supplied within the UK for the previous 12 months is more than the current registration threshold (£79,000 for 2013/14). The VAT Deregistration threshold is £77,000. • Who can register for VAT? An individual, a partnership, a company, a club, an association, a charity, any other organisation or group of people acting together under a particular name, such as an educational or health institution, exhibition, conference, etc. For VAT purposes, the individual or organisation that is in business is known as a 'taxable person'. • Who can’t register for VAT? Any individual or organisation that sells only goods or services that are exempt from VAT or that isn’t in business according to the definition that HM Revenue & Customs uses for VAT purposes • Voluntary Registration Available if you supply to other VAT registered business or if your capital outlay is high
  21. 21. National Insurance 2013-14 2012-13 2011-12 Lower earnings limit, primary Class 1 £109 £107 £102 Upper earnings limit, primary Class 1 £797 £817 £817 Upper accruals point £770 £770 £770 Primary threshold £149 £146 £136 Secondary threshold £148 £144 £136 Employees’ primary Class 1 rate between primary threshold and upper earnings limit 12% 12% 12% Employees’ primary Class 1 rate above upper earnings limit 2% 2% 2% Class 1A rate on employer provided benefits (1) 13.8% 13.8% 13.8% Employees’ contracted-out rebate 2% 2% 1.6% Married women’s reduced rate between primary threshold and upper earnings limit 5.85% 5.85% 5.85% Married women’s rate above upper earnings limit 2% 2% 2% Employers’ secondary Class 1 rate above secondary threshold 13.8% 13.8% 13.8% Employers’ contracted-out rebate, salary-related schemes 3.4% 3.4% 3.7% Employers’ contracted-out rebate, money-purchase schemes N/A N/A 1.4% Class 2 rate £2.70 £2.65 £2.50 Class 2 small earnings exception £5,725 per year £5,595 per year £5,315 per year Special Class 2 rate for share fishermen £3.35 £3.30 £3.15 Special Class 2 rate for volunteer development workers £5.45 £5.35 £5.10 Class 3 rate £13.55 £13.25 £12.60 Class 4 lower profits limit £7,755 per year £7,605 per year £7,225 per year Class 4 upper profits limit £41,450 per year £42,475 per year £42,475 per year Class 4 rate between lower profits limit and upper profits limit 9% 8% 9% Class 4 rate above upper profits limit 2% 2% 2%
  22. 22. Premises • • • • • Read any lease you receive before signing and take legal advice Look at shared space such as BV Studios Spike Island studios for artists or Spike Design Look into hot-desking for instance at or Paintworks or Wilder Studio Look into working at home Find a location that is close to the amenities you need for instance near a reliable printing studio or a post office
  23. 23. Additional Information Norton Accountancy Ltd 7 Soundwell Road Staple Hill Bristol BS16 4AG Tel: 0117 910 9858