Band as a Business (Tax implications)

Shoog

I'm just wondering if there are any tax advantages to registering my band as a business? I'm pretty clueless about all this...

The band is just a hobby right now, but if the opportunity arose it would become a full-time occupation.

Yearly income is likely to be tiny - £100-£200 maybe, but the expenditure (rehearsal, equipment, travel, etc) could be around £1000-£1500.

There's an added complication that this would technically be a 4-way partnership.

We all have full-time jobs and pay PAYE via our employers. Initially (possibly forever) the band is effectively a loss-making business. Could the losses from this business offset the tax we all pay on our main jobs or does it not work like that?

I'm sure if it was profit-making HMRC would want to know about it and take their share of tax, so would like to think it would work the opposite way round during non-profitable years???

Pennywise

For it to be a business, it has to be operated "with a view to profit".

HMRC won't accept loss claims if it makes losses year after year after year after year, never making a profit.

Shoog

Thanks. It is operated with a view to a profit, just very difficult to say if and when it would be in profit - a lot of investment needed up front.

An analogy: we're creating a brand and a set of products. We think there is a market for the products, but we can't really know for sure.

How many years would HMRC allow a loss-making business to claim? The company I work for made a loss for around 10 years before starting to turn a profit, though I don't know all the financial details.

antrobus

Shoog wrote: »

...The band is just a hobby right now, .....

The cost of pursuing a hobby is not an allowable expense for tax purposes. HMRC would deny any claim for hobby losses to be offset against other income.

If and when opportunity does knock and you become the next U2 then, of course, it will be a different story, and you will be expected to cough up a good slice of your profits. Until, that is, you employ some decent accountants, become a resident of Monaco, and start routing your royalties through a brass plate company in the Cayman Islands.

Mistral001

If you make a loss you are not liable to pay any tax. Simple as that. You cannot pay less tax on your PAYE earnings because of this loss. If your PAYE is related to the music industry, you could perhaps try to go self employed and then you might be able to lump the two businesses together. But I would see an accountant before even thinking of it.

antrobus

Shoog wrote: »

Thanks. It is operated with a view to a profit, just very difficult to say if and when it would be in profit - a lot of investment needed up front...

No, it's a hobby, you've admitted that much. It's being operated with a view to making a loss, you've admitted that much as well. The fact that you might be hopeful that it is a route to fame and fortune is neither here nor there. The nation is full of people who sing, dance, take photos, etc etc, all of whom no doubt have hopes of being discovered at some time. (See the X factor auditions.)

Shoog wrote: »

.. An analogy: we're creating a brand and a set of products. We think there is a market for the products, but we can't really know for sure.

No, it's a hobby. You've just said so.

Shoog wrote: »

...How many years would HMRC allow a loss-making business to claim? The company I work for made a loss for around 10 years before starting to turn a profit, though I don't know all the financial details.

Losses can always be carried forward ad infinitum and set off against future profits for the same trade.

Wywth

Shoog wrote: »

I'm just wondering if there are any tax advantages to registering my band as a business? I'm pretty clueless about all this...

The band is just a hobby right now, but if the opportunity arose it would become a full-time occupation.

Yearly income is likely to be tiny - £100-£200 maybe, but the expenditure (rehearsal, equipment, travel, etc) could be around £1000-£1500.

There's an added complication that this would technically be a 4-way partnership.

We all have full-time jobs and pay PAYE via our employers. Initially (possibly forever) the band is effectively a loss-making business. Could the losses from this business offset the tax we all pay on our main jobs or does it not work like that?

I'm sure if it was profit-making HMRC would want to know about it and take their share of tax, so would like to think it would work the opposite way round during non-profitable years???

I understand that you are currently in a band that you do as a hobby.

You are thinking of making this a bit more official and running it as a business. This is fine, especially as you are already making money, albeit currently small at just £100-£200 a year.

You have to pay tax on on that anyway, so you may as well run it as a business and set off the expenses you incur against tax.

Be aware that you can only do this as part of the business itself, and it will not affect your tax liability of your PAYE jobs.

So in the event you never earn more than you incur in reasonable expenses related to your business, then all you will do is reduce your tax liability to nothing on the earnings from your band.

(I must say £1500 expenses to earn £100 may raise some eyebrows as to the test of reasonableness if it continues on this basis. £100 should be the earnings from 1 or possibly 2 nights at the most. If it's costing you more in travel to get to the venue than you earn in gigging, then give up. Equipment would be assets of the business and not an expense.)

Shoog

Thanks again for all the responses, will reply properly later, but on the "hobby" issue....

Please don't get hung up on the term "hobby". My fault for using it. The fuller context though was "hobby right now". Right now, it is a hobby because no business has been registered and no profit or loss is being declared.

The long-term plan is to be profitable, to record songs which can be sold or licensed, to play gigs people will pay to come to see. Along the way, investment is required as outlined in my OP. At the moment the investment is coming from ourselves.

If the band is being paid to perform and receiving royalties for songs I'm fairly sure, in the strictest sense, this is a business and the earnings should be declared. However, the sums involved are low and as I understand it, we're unlikely to get in trouble for not declaring things at this level.

I'll read over the other points in-depth later.

Essentially, I was asking
- if there was any benefit to registering and declaring.
- if you can offset losses from your own business with earnings from a second job, to lower the tax your paying.

Thanks again

Mistral001

Shoog wrote: »

- if there was any benefit to registering and declaring.
- if you can offset losses from your own business with earnings from a second job, to lower the tax your paying.

Thanks again

There is a debate that goes on in this forum with regard to the first of these questions. There are those you argue that you will be carried away in handcuffs and locked up if you do not "register a business" (whatever that means) with HMRC even if you are not making any money from the business. Then there are those who argue that if you are not earning any money, why should the tax autorities be interested in you as you cannot be liable to pay income tax if you do not earn money. you have to make your own judgement I am afraid. there is plenty of information on the HMRC website to help you.

With regard to second question you ask see the my post above.

PS. Bands taking cash in hand are notorous for tax investigations, so would be advisable to keep all records to prove that you are not making any profit and not doing anything illegal if an investigation is made.

antrobus

Shoog wrote: »

...

Essentially, I was asking
- if there was any benefit to registering and declaring.

The benefit of registering and declaring would be that the losses could be carried forward indefintely. (Otherwise you're restricted to going back 4 years, or something like that.)

Shoog wrote: »

...
- if you can offset losses from your own business with earnings from a second job, to lower the tax your paying.

No, because it's a hobby.

You're not alone. There are thousands of other people who are 'in a band' and hoping to 'make it big'. All of them are doing so on the basis of a plan that involves them being paid to perform and receiving royalties at some point in the future. But until such time as those cheques arrive it's a hobby.

Wywth

Mistral001 wrote: »

...With regard to second question you ask see the my post above...

Or mine, which I thought addressed both questions already.

Do you think the OP is doing an 'Ed Milliband' and just asking questions without taking into account the responses already received? :huh: