This month in our culture blog our regular music tax advisor talks about vat and how Irish musicians can take advantage of it.
This week I have had a nice musical time attending the Cork Launch of Niwel Tsumbu’s new album ‘Song of The Nations’ (available from all good download shops and selected retail outlets nationwide). Enjoying the groovy tunes and peacefully chilling to the splendid vibes I was greeting many other chums and musical types all also enjoying the sounds… except of course for the small but noisy gaggle of Sharons and Tracys who were more interested in yakking very loud about their mundane lives than listening to the very beautiful music being created in front of them. As Beethoven said, pigs have more manners. But let us not dwell on such types, instead let us be positive, sing a happy tune, and place their photographs on a big sign saying ‘keep ignorant pigs out of quality gigs’. I don’t think that’s too extreme.
Any roadup, a gentleman ‘oo I’m sure you all know well, Mr Derek Kelly, was very kindly complimenting me on this very article and pertinently raised a point which he felt we should all be aware – and he’s right. If you remember in article number 3 we saw how publishing is becoming a more prominent aspect as agencies such as the PPI are moving to recoup all royalties due from all types of public broadcast and performance.
Well the taxman (yes him again) is also very active in pursuing venues to make sure that their paperwork and payments are in order. “But how does that affect me” says you ordinary musicians – well it’s not just the closing down of venues who don’t pay their taxes and license fees (and we all know a couple of venues out of business over this ): The venues that continue to do business are getting VERY KEEN to do their paperwork and pay all relevant fees to avoid being closed down and stay in business. And that means that when they book musicians to perform they are going to want RECEIPTS so they can show the taxman exactly where that 500 euro went on Friday night. So if you want gigs you’d better be prepared to give valid VAT receipts.
Now don’t panic, this is not so bad, but it’s going to mean if you want decent gigs (including festivals) you’re going to have to be compliant with VAT and income tax. Sorry but there it is, it can’t be avoided for ever. So, what constitutes a VAT receipt? A VAT receipt must have;-
- The name of your business
- Your Tax registration number (if you’re a sole trader this is your PPI number)
- The date
- The service you’ve provided
- The amount of money you charged
- Any VAT you charged
Just as any receipts you keep for your business expenses allow you to deduct them from your income tax calculation and claim back your VAT, so the venue will use your receipt to show your fee as a business expense on which they don’t have to pay tax. Now the VAT threshold is €37,500 for the supply of services this year, so if you’re playing less than 75 gigs annually at 500 a pop you don’t have to pay VAT so you don’t need to charge the venue VAT.
REMEMBER, VAT is a tax paid by the consumer of the final product, as a music producer you don’t have to pay it on any music related stuff, and if your annual turnover goes over the threshold for this year you charge the VAT to your customer (the venue).
Get registered for tax (form TR1 in the tax office) and when you’re pricing for gigs be smart and include your deductible costs. This means you add in amounts for all your expenses, your own fee and any tax you might have to pay. Here‘s and example based on a festival gig in Athlone (remember this calculation is an estimate just for your records, the bill you present the festival is just for the final amount described in the bullet points above);
Transport €50 [Petrol for 300 mile round trip]
Consumables €30 [Strings, plectrums etc NOT FOOD*]
Accomodation €240 [B&B for 6 people; driver + band]
Wages €762 [Include Income tax, PRSI & levy +]
* FOOD & CLOTHES are NOT deductible expenses, so take sandwiches & order a rider.
+ Income tax is 20% on income above €9,150 per annum for a single person.
PRSI and the health contribution are about another 5%
The levy is 2% on ALL income if you earn over €15,028 pa.
I recommend including a 27% markup on your basic wage to cover the taxman, then put that extra bit in your savings account. When you calculate your tax bill for the year it then can’t exceed the percentage you’ve banked because everyone gets tax credits (money you’re allowed to earn before tax), so you’ve actually saved something into the bargain. Thus in the example above each individual gets €100 in their pocket plus €27 for the taxman.
Remember you MUST KEEP ALL RECEIPTS otherwise the taxman, should he ever look at you, will assume everything is income and charge you Income Tax going back for as many years as you haven’t paid, and if there isn’t a paper trail he’ll just assume a figure based on what your likely income was!
Make sure musicians are either paid by cheque ( so you have a bank statement of it ) or sign for cash, otherwise you could end up being liable to pay their income tax! But if you DO keep your receipts and do proper tax returns you will actually end up paying LESS tax because you’ll pay less VAT. Trust me, for peace of mind alone it’s worth it. In the example above you’re eligible to claim back the VAT on the first 3 items, so the taxman will eventually only get a maximum of €162 from the €1082 total. Compare that €27 payment per individual to what you would have to pay later if the taxman charged you 27% on the full amount because you had no receipts;- €230 out of your own pocket!
Confused? It’s actually not too bad if you take it one step at a time. The Cork Enterprise Board do courses on tax for small businesses (the course fees are tax deductable of course!). The revenue actually make the whole thing pretty easy by having an online system www.ros.ie and they keep all their information here. In a rare example of joined up thinking the Income Tax and VAT even work together, so as you buy gear and claim legitimate expenses the VAT returned goes to pay your Income Tax and PRSI. Once that’s paid you actually get cash back from the Taxman. Nice!
Finally it’s an old truism that if you don’t lie you don’t have to remember what you told who. Keeping your receipts amounts to the same thing, but as a parent I now follow the slightly more restrictive maxim –
“Don’t say anything you wouldn’t have repeated back to you by a lawyer or a three year old”