A Guide to Tax Returns
What actors need to know about tax returns, National Insurance, VAT and allowable expenses.
Article updated December 2022.
As welcome as the onslaught of conversations about kale and dry January, is the fun of the tax return. Here to break it down and make it less daunting, are Chartered Certified Accountants, Breckman & Company, on what you need to know as an actor.
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Everyone who's self-employed will need to complete a tax return to HM Revenue and Customs (HMRC) and pay any money owed by 31 January.
Tax is payable on 31 January with an additional payment deadline of 31 July if you make advance payments towards your bill. In an ideal world, we would put aside enough to settle our liabilities, but often the payment due on 31 January is substantial.
It invariably consists of two parts:
- The shortfall on the previous year
- A payment on account of the current year.
You don’t need to be an accountant to appreciate that a payment on account, which is based on a previous year’s income, usually bears no relation to the actual income earned. The punitive aspect of this arrangement is that one is paying tax on 31 January, which is about two months before the end of the tax year on 5 April.
Submitting a claim to reduce payments on account
If you haven't taken on much acting work in a year, you can make a claim to reduce the payments. If you propose a lesser payment than what is eventually the actual figure, you would be penalised and charged interest on the shortfall. The problem is that by estimating a year’s income on 31 January, you have to assume your earning potential in the remaining two months of the tax year. If, for the luckier actor, you're able to get a commercial in these two months (and commercials mean big money), your estimate is wrong and the taxman reaps the benefit of the sudden commercial. You can of course revise the second payment on account, due in July, when more accurate figures are known.
Paying your tax bill
It's very important that some of your income is put aside to cover the tax liability that would be due in the following year. As an actor's income can fluctuate from year to year, you may have to pay a lot of tax relating to a previous year, when you're hardly earning now. If you haven’t put money aside in the good year you may then find it difficult to come up with the money due. The amount to put aside will depend on current/expected earnings and could be anywhere between 20-50%, depending on levels of income.
Under the tax self-assessment system, the taxpayer does all the work for HMRC and they then send out tax demands based on figures that you provide. From time to time they may decide to embark on an investigation into an individual taxpayer’s affairs. There are a number of reasons why they may do this:
- The individual is receiving tax refunds year after year.
- Figures submitted are inconsistent with previous years.
- HMRC are receiving details of earned income from an employer or theatre company which isn’t included in the individual’s accounts.
- An investigation at random.
Registering as self-employed
If you're just starting out as self-employed then you need to register with HMRC within six months of the end of the tax year in which you commenced self-employment, or you may incur a £100 late notification penalty. This is done by registering for tax online on HMRC's website or visiting an accountant who, as well as registering for you, can advise you on various other issues such as National Insurance Contributions, VAT, record-keeping, and what expenses can be claimed.
Often, actors have other part-time employed work or are in receipt of a pension, which may be taxed at source under PAYE, or other sources of taxable income. Each of these may affect the individual’s tax status.
National Insurance Contributions
There are various types of National Insurance Contributions, the most common being Class 1, Class 2 and Class 4.
- Class 1 contributions - contributions deducted at source through PAYE and relate to employed individuals.
- Class 2 contributions - if you're self-employed, you do not have to pay if you earn less than £6,725 a year, but you can choose to pay a voluntary contribution - we often recommend this to keep up your annual credits.
- Class 4 contributions - paid by self-employed people who earn profits over £11,908 a year.
Often, performers may end up paying a combination of all three classes and may therefore end up paying too much National Insurance. To remedy this, depending on the amounts involved, an adjustment is either made on the tax return or HMRC will issue an assessment - usually around 12-18 months after the year-end - and issue any refunds due.
If your turnover is in excess of £85,000 in any cumulative 12-month period then you should register for VAT. This means you then have to add VAT to all your fees and account for these. If notification is not made within one month, the individual may incur a penalty based on the tax due. There are also more strict rules for accounting and penalties for late returns.
Making tax digital
Making tax digital (MTD) means that VAT returns can no longer be submitted via HMRC’s own portal/website. Instead, proprietary software must be used to complete and submit your VAT return figures to HMRC. Some 'bridging' software is available to enable the use of spreadsheets.
The government is planning to introduce MTD for business owners and landlords, with incomes in excess of £10k, from April 2024. These taxpayers will be required to submit quarterly figures to HMRC, which will obviously increase the administrative burden, and professional fees, for taxpayers.
What expenses can I claim as an actor?
The descriptions of the various expense headings can be modified according to the role it plays in your repertoire. You’re restricted somewhat by the all-embracing HMRC interpretation of what expenses can be claimed. The legal mantra is that expenses claimed are to be "wholly and exclusively incurred in the performance of the business", but this is not always clear cut and may cover a multitude of sins.
By a process of elimination, we can see that a media person’s expenditure bears no relation to that of a taxi driver or plumber. Generally, the taxman would not allow clothing as an expense but if an actor were to buy clothing for a particular performance or for rehearsals, then this expenditure would be allowable. Also, if a performer were required to attend a film premiere where they are likely to be photographed for publicity purposes then the outfit they chose to wear could also be allowable.
Broadly speaking everything an actor does can be related to their work. They have to know what is going on in theatre and television. But, and it is a big but, the claiming of expenditure, wholly and exclusively, has to be done with care and not be abused. Over-claiming will lead to problems later on if the taxman decides to investigate.
Children and tax
Children under the age of 18 are taxed in much the same way as adults. The main difference is that children under the age of 16 do not pay National Insurance.
For the most up-to-date tax return guidance please visit the HMRC website. The content of this article is intended for general guidance only and represents our understanding of current law and HM Revenue & Customs practice. No responsibility for loss by any person acting or refraining from action as a result of this article can be accepted. We cannot assume legal liability for any errors or admissions this article may contain.
For further advice and all your accountancy and taxation needs, contact Graham Berry or Richard Nelson at Breckman & Company, Chartered Certified Accountants – ‘Leading showbusiness accountants’. (The Stage).
You can find a list of performer-friendly accountants on our contacts page, who can help you with all your tax needs.
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