tiintax

At Follycon, the British Science Fiction convention (Eastercon) held at Harrogate over the Easter weekend, I was one of the panel in a session discussing business for creatives. Our brief was to look at finance, publicity, marketing and branding for writers, artists and other creative workers when they start to make money and have to think of themselves as a business, for example when they get their first sale.

It transpired that the people present were keen to hear about taxes  and I said I would expand a little on my breathless summary of “three rules, two numbers and a concept”.

Three rules: rule one – pay your taxes. As Oliver Wendell Holmes may have said, tax is the price we pay for civilisation, and I’d rather live in civilisation, thanks.

Rule two – don’t take the piss. Much of the tax avoidance industry would disappear if this simple rule were more widely followed. For a creative start up, I’d suggest you don’t spend your time trying to argue you *really* started in business when you started thinking about unicorns in 1982 so you should be able to subtract your cinema tickets for the entire Star Wars and Marvel series from the £250 advance for your fantasy novel… It annoys HMRC and makes you look like a smart arse, and nobody loves a smart arse.

Rule three – don’t let HMRC take the piss either. Know your rights and demand them. Remember the VAT MOSS fiasco and don’t assume you can’t make a difference. And don’t agree to let the state have your voiceprint on file!

Next: two numbers to remember. The first is £1000, which is the amount you can earn under the new rules on tax free allowances for property and trading income. So if you are on PAYE and don’t have to make a self-assessment return already, you don’t have to panic about tax when you sign the contract for your first novel or sell your first illustration. Provided the advance is less than £1000 you don’t have to pay tax on it. If it is more than £1000 you can choose, instead of claiming every piece of paper and trip to Eastercon against it, to claim a flat-rate £1000 instead. Yep. If your advance is £1005 you can pay tax on the £5 – although be aware that this is a new piece of legislation, that’s just my interpretation of it, and HMRC haven’t produced particularly good guidance on it yet. If you are already on self-assessment for some other reason you don’t seem to get this option, for example. And – see Rule Two – you can’t decide you have thirty seven different income streams (selling books with red covers, selling books with blue covers…) and hope they’re all exempt. The £1000 is a global total, so it includes your book advance AND your side business of dog walking AND the £300 your cousin paid you for typing their thesis.

The second number is, of course, £85,000 which is the point at which you have to start paying VAT. In general, if you suddenly start getting paid at that sort of rate I’d advise you to see an accountant anyway, but the reason the VAT limit is going to become increasingly important over the next few years is this thing called MTD – Making Tax Digital. HMRC has this theory that we’re all stashing cash down the back of our sofas and that if we all had to keep our records tidily on computers and share them with HMRC four times a year we’d stop doing it and they’d get more tax.  What would actually happen, of course, is that we’d carry on being careful to declare our turnover – because, see Rule One and Rule Two – but we’d all be much more fly about our expenses, and that fifty quid train fare that you couldn’t remember whether it was business or personal would be much more meticulously recorded so profits might, perversely, go DOWN.

If your turnover is less than £85k you can, at the moment, keep your records how you like. MTD cuts in at the VAT threshold – and, be warned, HMRC are taking “evidence” of whether the VAT threshold ought to come down. Watch this space.

Finally, a concept: “wholly and exclusively”. You can deduct expenses which are “wholly and exclusively” for business purposes from your business turnover to arrive at your business profit. This is a big conceptual leap from PAYE taxes, where you can only deduct expenses which are “wholly exclusively and necessarily” incurred in the performance of the duties – a much more restrictive concept.

So – I asked the audience – why are you at Eastercon? Wholly and exclusively for business purposes – to make contacts, to find an agent, publisher etc, to connect with your fans, to increase your professional reputation, to sell books or other creative work? Then the cost of the convention itself and the travel to and from it would be allowable expenses, incurred wholly and exclusively for business purposes. The fact that you might enjoy the convention doesn’t make it disallowable in and of itself: the test is why you came. The fact that you might not have found an agent/publisher/fan base at the con also doesn’t make the expense disallowable – you don’t have to be successful to have an allowable business expense.

What you DO have to have is a wholly business expense. Can you claim the cost of food and drink at the con?

That was when I referred people to the tax case of Mallalieu v Drummond. A barrister had to wear specific colours of clothes in court but wasn’t allowed to claim a deduction for them: you have to wear clothes anyway, so they weren’t “wholly and exclusively” for business purposes. We talked about the need to eat and drink anyway, and whether it would be reasonable to claim the extra cost of eating at the con. With strict adherence to Rule Two, you should be fine.

Creatives, if you have a question, feel free to post it in comments or ask it on #taxtwitter.  Tax mavens, if you’ve spotted anything I’ve forgotten or would like to add any other rules, numbers or precepts, please join in!