Amateur band and taxes

Careful_ly

Hi


Would be grateful for your opinion on the tax situation please.


A group of friends got together last year and started to play as a small band for their own entertainment.
They were asked to play at a local music festival and from there on have been playing by request at a local pubs.


They have had payments of £100 per session for these evenings, which for 10 people for 2-3 hour sets is only a token payment.


Going forward we can see £2000 approximately per year being earned by the band. The instruments are going to wear out at this level of playing and there are some travel expenses.


What are the implications of this situation please?
Do we need to file accounts at this level of earnings?

Savvy_Sue

'The band' is presumably not a legal entity (partnership or ltd company), rather it is a motley collection of individuals who each maintain their own instruments. Whether making it a legal entity is worthwhile is the kind of question for which you need proper advice! ie the kind you may have to pay for.

But if I've described the situation correctly, then each individual needs to account to HMRC for any additional taxable income. And each individual can reduce their liability if they have incurred necessary expenses in the course of their band activities. And that might include buying new instruments, although the whole cost is unlikely to be set against their income from the band, because they might well play for pleasure as well as profit, no?

But this is just a first stab at answering your post, and wiser heads than mine will come along and correct me, I'm sure ...

da_rule

I would agree with Savvy_Sue. You are earning money from this. There are lots of expenses you can use (depreciation of instruments, replacemt of parts/instruments and travel etc) that you can use to limit your tax liability. But, if you are earning £100 per gig then you may be making a profit after these expenses. Also as was said, if you use the instruments for personal use (enjoyment etc) then you need to apportion any costs relating to that instrument accordingly. So, if you use the instrument 50% for the band and 50% for enjoyment you would only be able to claim half of the purchase price of a replacement as an expense.

00ec25

you need to be careful - there is a fine line between a "motley collection of individuals" or the band as a trading activity of said individuals.
If the band is a defined legal entity (company) then its costs need to be weighed against the very modest income you stand to generate

At the moment HMRC will claim that your activity comprises a hobby not a business activity and therefore you need to declare your income as casual earnings (which is a specific category of income) but cannot claim expenses as you are not trading , ie undertaking a business related activity with a view to making a profit

there is a whole host of "badges of trading" used to decide if your activity is a business rather than a hobby and therefore eligible for claims of expenses and losses.
Language such as "for their own entertainment" precludes it being a business

http://www.hmrc.gov.uk/manuals/bimmanual/bim20090.htm

http://www.hmrc.gov.uk/manuals/bimmanual/bim20200.htm

Savvy_Sue

da_rule wrote: »

But, if you are earning £100 per gig then you may be making a profit after these expenses.

Perhaps wrongly, I read it as The Band were being paid £100 per gig, to be divided between 10 people. The OP talks about The Band earning £2,000 next year: we are not talking large sums for each individual.

And if as 00 says their expenses cannot be set against their tax liability because it is a hobby business .... frankly, they could be better off if they each paid the venues £5 NOT to play!

It's a tricky one: I recently organised a ceilidh, and I knew we couldn't afford a live band. We paid a caller £200, which included him borrowing PA kit from a mate, and I'd say he earned every penny of it! How could I offer less to a musician?

da_rule

Yeah my bad, I read it as if they were receiving £1000 per gig. Probably time for bed.

jimmo

The miscellaneous income provisions are in reality a “sweep up” to cover any other income.
http://www.hmrc.gov.uk/manuals/bimmanual/BIM100101.htm
However, if you are playing music for reward you are almost certainly trading and the trading rules apply. You are therefore perfectly entitled to take account of relevant expenses and capital allowances in determining whether there are any taxable profits.
Where the hobbies bit comes into this is that your trading activities probably do not amount to “trading on a commercial basis with a view to realising a profit.” and so you will not be able to claim tax relief for your losses.
http://www.hmrc.gov.uk/manuals/bimmanual/BIM85700.htm
I would suggest that if the band is generating gross annual income of £2,000 each band member should at least tell HMRC of their personal involvement.
In practical terms, and ignoring expenses, a basic rate taxpayer should face a liability of £40 on an annual income of £200 but it will cost HMRC a lot more than that to collect it.
With 10 band members it is more than possible there will be 10 different outcomes ranging from “You will need to complete annual Self Assessments and pay up every penny.“ to “ Just let us know when you make taxable profits.”
The reason I suggest that approach is that, fairly obviously, the pub landlords etc who pay the band will be entitled to claim their costs as an expense in their own business and HMRC will then be perfectly entitled to demand names and addresses.
http://www.legislation.gov.uk/ukpga/1970/9/section/16/enacted

Savvy_Sue

jimmo, I'm wondering if you'd have an opinion on whether, in the circumstances, it would be worth the band forming a partnership of some kind? I realise that there may still be tax liabilities, but might there be advantages?

jimmo

I seriously doubt it, Sue.
Forming a partnership would just put another layer of red tape in place and more reasons for HMRC to put the lot of them into Self Assessment plus, of course, the partnership.

Careful_ly

What if instead of the £100, each person was given say three drinks each, is there likely to be any tax implications for that? They are buying several drinks each whilst there, as are singing and obviously getting needing drinks.







Getting together was never intended to turn into a revenue generating event, and we are very aware that some people thrown into self assessment will drop out of the band instead.

Savvy_Sue

Careful_ly wrote: »

What if instead of the £100, each person was given say three drinks each, is there likely to be any tax implications for that? They are buying several drinks each whilst there, as are singing and obviously getting needing drinks.







Getting together was never intended to turn into a revenue generating event, and we are very aware that some people thrown into self assessment will drop out of the band instead.

Then I'd explore making The Band more of an entity. For example, if you set up a Clubs and Societies account with any convenient bank, pay the gig fees into that, and as you say buy the drinks out of it. If money isn't going into individual pockets, there's no tax liability.

You'd need a small 'committee' to run it, but it shouldn't be onerous.

Mind you, if you have a standard booking contract I'd ask for at least one free drink each as part of that - £100 for ten musicians to play for 2-3 hours? Someone is having a laugh, and it's not The Band!