Making a living as a freelance musician is a dream to some but, just like all freelance work, it has some aspects that might make you wish you’d just taken that office job.
Sleeping in the back of vans, endless practice and worrying about getting paid are some of the big ones. Then, of course, there’s the accounting to deal with too.
We know you’d rather be spending your time on the fun stuff, but here’s some simple advice how to take care of your finances as a freelance musician.
Forming A Limited Company
First things first, depending on what you’re earning it might be a good idea to start working under your own limited company. To many this might seem like overkill for the level of work they’re doing, but there are plenty of good reasons to form a limited company.
If you’re bringing in around £20,000 a year, with £2,000 annual expenses, you may find your own accountant pays for itself. We’ve got a great article about how to set up your own limited company that shows just how easy it can be – or you can download this guide to read at your convenience.
This is simultaneously the most enjoyable and irritating part of doing your accounts. While it’s great to recoup some of your costs, there are also loads of rules about what is and isn’t acceptable.
The basic rule is that anything you claim as an expense must be used ‘wholly and exclusively’ for your business, with no exceptions.
Travel can be a big part of a musician’s life, so you’ll be glad to know you can usually claim those costs back. If you travel in your own car or van, you can get back 45p per mile for the first 10,000 miles.
After that, any mileage over 10,000 in one year can only be claimed at 25p. If you’re on a motorbike, it’s 24p per mile, while on bicycle it’s 20p (but only if you work through a limited company – sole traders. You can also claim on things like bus and train tickets.
If you’ve got a gig out of town, you can claim accommodation and subsistence. This means you can get your hotel / hostel and food covered (your lunch won’t be, unless it coincides with travelling on business). Don’t be overzealous though – you’re not getting away with a 5-star hotel and lobsters. Be modest and be smart.
You’ll also be able to claim for smaller items such as strings and drumsticks. These are considered consumable as obviously they won’t last forever, so they’re allowable.
In the end, it’s all about common sense. If it’s 100% essential and you’re not using it for anything outside your business, you should be able to claim for it. Here’s a rundown of a few things you can claim for (again – only if they’re for business use!):
- Stationery – This includes envelopes, printing costs, pens, photocopying and similar costs
- Postage costs
- Telephone calls – You can only claim for business calls of course so you’ll need to to split your bill up into personal and business calls to work out how much you can claim
- Instrument insurance and repairs
- Cleaning materials for your instruments
- Instrument replacements – Be careful here. This only applies to smaller more inexpensive items
- Music – This includes things like manuscripts and sheet music
- Publicity costs – This includes things like flyers, badges and posters. It even includes the costs for photo sessions
- Rehearsal room, studio and instrument hire
- Commissions paid to agents and managers
- Solicitors’ fees (As a side note, always get advice from a solicitor before signing contracts. They can often cause a lot of problems if they’re not read properly – especially when it comes to signing a record deal. Always seek professional advice)
- Audio equipment – Things like CD or MP3 players. You’ll need to prove these are essential though, such as needing them to learn pieces of music
- Wages – This is for a secretary or a roadie. Beware though – the employment status of people who work for you is complex, you may need to set up a PAYE scheme. You should always seek specialist advice about this.
Keeping Your Papers In Order
Whether you have an accountant or are taking on bookkeeping responsibilities yourself, it’s incredibly important to be organised, especially if you’re planning on making expense claims.
Do you ever empty your wallet of two weeks of receipts and have no idea what half of them were for? Imagine this, but over the space of a year, and you’ll realise why prompt and proper filing is your friend.
The first rule is to keep everything. Receipts, contracts, invoices (we’ve got a great free invoice generator or alternatively some free invoice templates) and anything else that might be useful. While it’s possible all of this will never be needed again, you want to be prepared in case HMRC have any probing questions about your accounts after you submit them.
Bear in mind, also, that you can’t just throw away records once the financial year is over – HMRC can ask about information up to six years after it was submitted. We’d always recommend making electronic backups, as receipts tend to fade over time.
Make sure everything has a date on it and get it organised in chronological order, and preferable separated by type. Stay organised and you’ll be saving yourself a headache later on.
This is the part where you actually have to sit down and work everything out. As a self-employed musician you won’t be paying your tax through a PAYE scheme (as a normal employee would), so every year you must complete a Self Assessment to tell HMRC about your earnings, and calculate how much tax you owe.
If you’re confused as to whether you need to complete a Self Assessment, check out our article ‘Do I have to complete a Self Assessment tax return?‘.
If you’ve been good with your record-keeping this shouldn’t be too difficult. If you haven’t, you may find January to be a fairly miserable month.
Make sure you get registered for your Self Assessment as soon as you can – registration can take a few weeks, so it’s best not to leave it to the last minute.
Failure to register or submit your Self Assessment will lead to fines and penalties. Get the jump on your accounting and you’ll feel much better for it.
Here’s all the information you’ll need to get yourself sorted, in a downloadable, jargon-free Self Assessment Guide.