0 Singing accountant warns performers of Very Annoying Tax (VAT) error

With rumours of a reduction in VAT gaining popularity (but still unlikely), I am urging performers to take a closer look at their earnings as the market recovers.

I am concerned that whilst performers are now starting to generate more work, some are not fully aware of how to properly account for this, especially as they approach the VAT threshold of £85,000.

Things have been taking off again in the West End and touring shows around the UK. Even understudies and deputies are getting more and more work, perhaps even MORE than pre-pandemic. However, where there’s growth, there’s tax. Especially for those who are creeping ever closer towards the VAT threshold again – maybe after they de-registered in the pandemic?’

Performers are playing “catch-up” after the last couple of years. They are squeezing more and more work into their schedules as best they can and who can blame them? The problem is, VAT is calculated on a rolling 12-month working period.

So if you’re back in the saddle, this is fab but work PRIOR to the theatres opening does actually need to be included in your sums too.

What I term the “Very Annoying Tax” (VAT) issue may become trickier still, with many performers having deregistered for VAT when work was dropping off a cliff.

As you get close to the threshold (£85,000 for anyone falling asleep at the back) you need to register for VAT and then start charging it. Now, you will need a VAT number for this which will be announced by HMRC and this is often by no means a swift process. If you are late registering for VAT, you may have to start going back several months and then “onward bill” any VAT. If this is the case, warn the production company, fixer or your agent.

This is all before we even factor in the impact of deping-out work and how that changes your VAT situation. When it comes to the VAT threshold, it is the total earned, not “made” that concerns our friends at HMRC.

The dep costs are a factor in your profits and self-assessment but not the threshold so be vigilant.

The least you need to know:

1. VAT is on GROSS fee income, before any expenses.

2. Look at it over 12 months rolling.

3. Work it out monthly and for heaven’s sake, register pronto!

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0 Change in Tax reporting – for some

Tax adverts causing panic?

Hi guys.  Well, no doubt you have seen all these adverts for accounting systems saying the way we report numbers to HMRC is changing and it has to be digital & online every quarter. They want to sell their “MTD” accounting systems to you, but they don’t actually say what is changing or how their system can help. If you don’t know what you are doing, these systems can really hinder you, so please don’t rash buy.

So – what’s it all about Alfie?

You will hear the acronym MTD being brandished about all the time – and that stands for “Making Tax Difficult”, oh no sorry, “making tax digital”. It was decided a few years ago tat everybody should file all their taxes online from accounting software or possibly spreadsheets with links enabled, so there will be no human contact and provide better information to HMRC. As we know rubbish in rubbish out.  This will eventually cover on a quarterly basis income tax & national insurance, corporation tax and VAT

Where HMRC are starting from April 2019 is with VAT. If you are VAT registered with a vatable turnover of more than £85000, then you will need to comply with the new rules with your first VAT return period starting on/after 1^st April 2019. There are lots of things that have to happen, and I will be publishing all the steps by the end of May 2019 in order that people affected by their 1^st VAT period 1 April to 30 June can be ready,  and it is these people that need to think about software and how to use it.  Those VAT registered people/companies less than £85K turnover may have to come into the programme from April 2020 – watch this space.

For people that are not VAT registered, then this new quarterly digital reporting does not affect you and you do not need to panic or worry about it yet. Nothing will change for you before 2021 at the earliest according to an announcement in the Spring Statement 2019, so please do not go into a meltdown, so not buy software if you don’t need it or want it yet.  I do encourage you to consider some form of digital / online accounting system whether that is Xero, Clearbooks, 1Tap etc, but it cannot be a half hearted decision. If you decide to go this route, you need to keep it up and be consistent with it, otherwise it is not going to help you with the business side of being a musician, actor, VO artist, dancer, teacher etc.

If you are VAT registered:

In the meantime, if you are VAT registered and with a turnover (fee income) of over £85000, then you will have to comply with the new reporting rules. If you are not VAT registered, then keep it in the back of your mind that things are changing , and consider if you want to go part of the way to be compliant and fully ready when it kicks in for quarterly digital reporting.

What now?

I am more than happy to answer questions on it all, and if there is enough demand, set up a zoom conference call for people to join in (probably a Wednesday afternoon) and we can go through what the systems are, their pitfalls from where I stand as an accountant, and just do an open discussion.  Comment below if you think this will be useful or not.

Other Reading

Of course, if you would like to read more on MTD yourself, please refer to to the government pages by clicking >>> HERE <<<  but as I say, don’t panic yet.

0 Changes in Tax Reporting

For all you self-employed and landlords – this is a quick heads up. Company owners, you do need to know about this as well.

Back in March 2015, the government announced the end of the tax return and we all jumped for joy (except for accountants of course). Well, that state of play is getting closer for the freelancers/self-employed people and landlords if their income from this type of source is over £10,000.

Consultation documents were issued by HMRC in August 2016 all about “making tax digital” (MTD). The idea is that individuals with income which is not taxed at source greater than £10,000, will need to do quarterly reporting to HMRC via online accounting systems or apps, or via a standalone system that can send data directly to HMRC. Gone will be the days of using excel (other spreadsheet systems are available) to collate your numbers and then load the totals onto the HMRC portal. You will note that it says income, not profit. HMRC require that everybody caught will need to keep their records online, and these records include your bank transactions for your business whether it is a bank account, credit card or PayPal type systems; sales invoices, purchase invoices & receipts, plus records of cash spend and income.

The idea being is that these records are entered or electronically loaded on a regular basis, and at the end of each quarter (or more if you want to), a summary of data is transmitted to HMRC within 30 days of the quarter end. It is only a summary of the data in specified categories and not actual copies of receipts and invoices.

The consultation documents propose that this kicks off from April 2018, and the first reporting could be as early as May 2018 depending on how people want to set up their reporting. The maximum time between reporting is three months. At the end of the year, there is a nine-month period that you can amend your numbers of any adjustment like mileage allowance, home office calculations, accruals, etc. So the numbers have to be finalised by the 31^st December (if your year end is 31^st March) or 5^th January (if the year-end is 5^th April). So the 31^st January will not exist when this comes in. You lose a month.

What people may not realise is if you have a year that is not the 31^st March/5^th April, for example, a teacher may pick 31^st August for a school year. Then you still have quarterly reporting, but your final assessment deadline is nine months after the 31^st August (31^st May) rather than 31^st January 18 months later. That is doing to be a huge change for these people as they will be effectively working on three tax returns at the same time rather than two. The year end of 31^st August 2019 ends in tax year 2019/2020 would need to be on the tax return by the 31^st Jan 2021 under the old scheme, but under Making Tax Digital, it needs to be finalised to the tax man by 31^st May 2020.

There are specific exemptions noted in this consultation:

• Self-employed businesses and landlords with income below £10000;
• Charities;
• Community Amateur Sports Clubs;
• Insolvent businesses and insolvency practitioner;
• The Digitally Excluded, e. those without computers or broadband, or for other reasons.

To add a nail in the coffin a bit more, unlike self-assessment tax returns and payroll systems, HMRC will not be providing any free software for MTD. They are looking to the software providers to make available free software for the smallest of businesses, but commercially why would the software companies do this. It is more likely that the software is something that the company needs to pay for on a monthly basis and find ways of making it work for them and that then just adds to the administrative burden & cost for the business. I am already looking at package solutions for clients to overcome the problems of MTD from a DIY & review pack through to a fully serviced option. More on that another time.

I’ve seen things on social media sites that people are saying this is voluntary and you don’t have to do it. That is not correct. All self-employed businesses will have to go down this route unless they are in the exemption categories. The bits that are optional is if you use a cash accounting method, if you want to report more frequently than quarterly, or if you want to make payments on account after each reporting period.

Of course, if you don’t file things on time each quarter, there will be a penalty system. At the moment they are proposing that if you are late, you get a “point”, and once you have 4 points, you get a penalty. Those 4 points stay for 24 months, and each time you get another point when you have 4, another penalty. Of course, this is up for question as well.

If you run your company, don’t sit there and smirk as VAT registered companies will come into the game on the current rollout programme from April 2019, and all companies from April 2020.

As I say, this is still at the consultation stage that ends on the 7^th November. Some people think the final plan will come out with the finance bill on the 23^rd November; others believe it will be finalised in March 2017. A critical area of concern is the start date being April 2018 and if it should be April 2019. The starting level of £10,000 is being questioned of being too low and a look at the VAT threshold (£83,000 of income) before this comes into play.

I’ll be keeping a close eye on this as it will affect most of my clients. One of the best things you can do at the moment is take out that second personal bank account as your business account and get used to putting all your business transactions through it. Leave your real personal account as private costs like rent/mortgage, council tax, utilities, food, clothing, having fun, etc. Just do transfers from the “business account” to the real personal account when needed. When the MTD reporting comes on board, you only have one account to deal with and process through to an accounting system for HMRC. Also start to look at accounting systems and what they can do for you. At the moment, we will be considering Xero as the accounting system linked with Receipt Bank or Entryless for taking photos of receipts to load into Xero and Tripcatcher for mileage records.

If you have any questions, please feel free to ask. As this gets closer, I’ll probably need to get a support desk system in place, and use an FAQ page on my website to help people get through the pain of all this.

Should you desire to read the documents and put your opinion to HMRC, then the documents can be found >>> HERE <<<