Alexa: This week accountant Andy Muckett is helping to demystify tax for us self employed creatives. Andy has been involved in the tax world since he left school, originally working for HMRC, before moving into the accounting profession where he specialised in personal taxation and gained accreditation as a chartered tax advisor.

He founded AKM Accounting Solutions in 1992, and he's spending some time with us today to answer all our questions on tax returns, expenses, and much more. 

Just to note before we begin, this discussion does not constitute as blanket actionable tax or accounting advice, so do seek your own guidance from a tax and accounting professional.

Andy Muckett, why do you think that tax can feel quite confusing and a bit like a slog to many of us self employed vocal coaches and singing teachers in the UK? 

Andy: Thanks Alexa. It's fundamentally I think it's, there's that kind of disconnect between being in the creative [00:01:00] industry , and having to deal with something that's very much a kind of numbers and what I would kind of describe as a kind of 3D world.

So I think it can be difficult for creative minds just to get their head around form filling and the mundanity of that kind of thing. For some people, the less creative people, it's a form filling is a joy, but for creative people, not so much. 

Alexa: Hate form filling.

It's actually something that brings me a bit of fear. I don't know why that is. I think I just want to do everything correctly, and even sometimes I'm like, is that my name? Is that correct? 

Andy: Yeah, I think there's fear of getting stuff wrong, but also, you know, if it's something you're not familiar with, if it's something that doesn't light you up, You're just not going to want to do it.

You know, we, we do talk with clients sometimes who you know, they'll come to us and go, Oh, I did my own tax return last year. And you go, well done. And they're excited about it. They may have made mistakes on it, but they're excited about it. Because they enjoy that kind of [00:02:00] thing. But, but yeah, definitely the clients that we have on the creative side do not enjoy form filling and find it overwhelming.

Yeah, and often for fear of getting it wrong as well. 

Alexa: So what's the most common question that you get asked about tax?

Andy: The, probably the classic question that I get most of the time is I haven't got any money, therefore how can I have a tax bill? I think what happens, especially in the self employed arena, is that people will view their business as a business and they'll say, well, okay, , the, the business is earning money, but then I'm taking wages from that business.

And after I've taken my wages, there's no money left. So how can I have made a profit? And I think there's just a disconnect there sometimes with, actually, as a self employed person, the wages that you draw from your business are in fact your profit, and that's what you end up being taxed on. 

Alexa: I know that when I moved into the self employed lifestyle, if you [00:03:00] like, moving from a PAYE where your tax gets taken out and you never see it, to something where actually you're putting your tax aside for the entire year.

It was a bit of a shift because you saw the money that you were then going to have to pay in a bill, whereas you didn't see that before. So that was something to really get used to for me. 

Andy: It's, it's, it's really difficult because you've got to get into the habit and, you know, we're all encouraged to save but if you're not used to having to put money aside for a bill at a later date, it can be quite a difficult discipline to get into. Nowadays, everything's monthly by direct debit, your car insurance, your car tax, your Your phone bills, you know, all these things used to be quarterly, way, way, way, way back.

And you'd have to write a cheque for them and, or there might be annually for your car insurance. So the advent of paying for everything monthly means no one has to really budget for a future bill, because they don't have to [00:04:00] think about it. And moving from employed where all your tax is taken care of, and you know that money that you get at the end of the month, you is yours to do with as you will.

And having to say, hang on, the money that I earn throughout the month, and I'm earning it from multiple different sources, perhaps throughout the month, I've got to take a chunk of that and I've got to put it into a savings account somewhere to make sure that I've got enough money to pay my tax. But I don't know how much my tax is yet, because I don't know how much money I've earned 

so, yeah, it's a really difficult discipline. And it's really difficult to get right. But again, talking to someone in the in the accounting and the tax game can certainly steer you in the right direction as to budgeting for your tax bill. 

Alexa: So when is it that we have to actually register as being self employed in the UK?

Andy: You have to register by the [00:05:00] 31st of October following the tax year in which you became self employed. 

That's the long answer. The short answer is 

you might as well register from the outset really as soon as you're self employed because then you've just ticked it off the list. It's one thing that you've got out of the way and experience tells me that if you leave it late to register, if you left it to that deadline, actually, you might not get a reference number issued by HMRC in time, which means you might end up doing a late tax return, which means you might end up with a penalty.

So actually, the sooner that you can register for self employment, the better.

Alexa: What are the main differences between being employed and self employed in terms of tax responsibilities?

Andy: So yeah, at a very basic level, when you are employed you'll have a contract of employment and it's it's effectively like a master servant [00:06:00] type relationship. You're expected to show up for work. Your employer is expected to give you work. You know, you can sit there at your desk and if your employer doesn't give you any work.

Well, you've turned up for work, so, you know, there's, there's not a question there. They've got you for those hours. They use you, they don't. Self employed, you tend to be employed on a, let's call it on a per gig basis, right? So you, you show up to do a particular piece of work, and then you disappear again.

And the contract is just for that piece of work, rather than for You know, a contract of employment which might be open ended or it might be for a fixed period of time. Generally, the self employed people will be contracted to deliver something specific. And then go, an employed person will just be there and, you know, maybe issue, maybe given duties that they weren't expecting when they were first employed those kind of things.

And in terms of the, [00:07:00] the taxation, the employer where you're, when you're an employee, the employer has the obligation to deduct tax and national insurance under PAYE. So in theory, doesn't always happen, but in theory, you pay the right amount of tax as you go along throughout the year, which means at the end of the year, you don't need to do a tax return because in theory, you've paid the right tax along the way.

Caveat, doesn't always happen. Sometimes you get under deductions, over deductions, but generally. That's how that works. Whereas with self employed, and depending on exactly the nature of the, the the work that you're doing, but generally as self employed, there's no obligation to deduct tax or national insurance.

 And you, as the self employed person, are fully responsible for those obligations. 

Alexa: So what actually constitutes as a taxable [00:08:00] income for the self employed singing teacher?

Andy: It's going to be pretty much any income that you receive in exchange for either goods or services. So any, you know, singing lessons that, that you provide, any money that you receive from that is going to be a taxable receipt. And potentially as well if you're selling I don't know, let's say that you're buying sheet music or something like that, and then you're, providing that to your students.

So you might be making a small margin on that. You might not be, but nonetheless, anything where you're exchanging money for, for goods or services, it's going to be the kind of top line of your taxable income of your profit and loss account, if you like. So after that, it's then looking up what deductions you can offset against that income to work out what your bottom line, your net profit, your taxable income actually is.

Alexa: You mentioned before that it's quite difficult for us to [00:09:00] actually know what our tax bill is going to be. So do you have any tips on how we can roughly estimate how much we're going to be paying come January or whenever we've submitted our return? 

Andy: There's different approaches depending, I guess, on not, not risk, but how

how prepared you want to be. If you're the kind of person that wants to make sure you've got absolutely all the money you're ever going to need to pay your tax bill, then you know, if your earnings are likely to be under £50, 000 for the year, so you would be a basic rate taxpayer, then a really good, good rule of thumb, and it is very much a rule of thumb, would be if you were to take 20 percent of all your top line income before any expenses, take 20 percent of that and put it away in a savings account, then in theory that would give you [00:10:00] more than enough money than you need to pay your tax when it comes around.

Now everybody's circumstances are different. And we're assuming that you've only got earned income of, you know, that level below 50, 000 and you haven't got any rental income or any other income coming in. So yeah, that would normally make sure that you've got enough money and perhaps some spare.

So it's actually quite a good way of saving money for yourself anyway. If you want to be even more sure, or if you just want to get into that habit of saving money, not just for tax, but for yourself, then maybe it's not 20%, maybe it's 25%. So it just gets you in the habit of building up a little buffer for emergencies as well.

But everybody's individual. So and everybody's got a different attitude, you know, if I just have enough tax money, that'll be fine. Or actually, no, I want a buffer, please. So it'd be a different percentage.

Alexa: Is there a better time of year for us to be actually increasing our [00:11:00] prices? 

Andy: From a tax perspective, I don't think it makes a difference at all as to when you increase your prices. I would think about your industry and think about the times when you are busiest and the times when you are slowest.

My guess is that it's seasonal, right? 

Alexa: Personally, that's what I find, that summer is slightly slower, maybe around the Christmas mark it gets a little bit slower, but then it picks up at other times of the year. 

Andy: Yeah, so I don't think there's a good tax time to do it.

But from a kind of seasonal time, my gut feel is to put prices up when I know demand is going to be high. So I'm guessing that's going to be end of the summer. People have had a break. Perhaps that's a time when you've got new, new clients coming on board, new students coming on board, and actually that's the time when actually resetting your, your price levels is the right thing to do.

Alexa: I've got a couple of scenarios here that I'd love to get your advice on. So, Some of us might have student [00:12:00] loans from when we were studying. When will that start to be deducted from our self employed income? 

Andy: So student loans, they come in a variety as I'm sure you know, different plans, right? It's like five, I think, different plans.

Broadly, when your income hits around about 25, 000, that's when the repayments start to kick in. And that then works out on your tax return. So you pay that student loan repayment at the same time as you pay your income tax on your self assessment tax return. And sometimes you might not quite know that you're getting there.

And sometimes you might forget that actually if I have a great year this year, I'm going to have to start paying back my student loan. Hang on a minute, I didn't factor that into my calculations. Some people as well, they might say, do you know what, I don't want to earn too much money this [00:13:00] year because I don't want to start paying my student loan back. But yeah, around about 25, 000 is where your student loan repayments will start kicking in, and that's if you're taxable profit, not your headline income.

Alexa: How does it work if a performer or a singing teacher gets a gig overseas? So A lot of us might have students going off onto cruise ships, or maybe we get a gig to go and do a conference over in Canada or somewhere. So how would we be working out our tax then? 

Andy: Tax in the UK, because we are talking about the UK, is generally based upon whether or not you are resident in the UK for a tax year.

 And there are complicated rules around residence, there's a statutory residence test which you need to kind of follow through to determine whether or not you are a resident, treated as a resident of the UK or not. Which will then determine how your income is taxed. But broadly, [00:14:00] assuming that you are a resident in the UK, or deemed as tax resident in the UK for the year.

Andy: You will be taxed on your worldwide income, wherever you receive it. So I think you mentioned Canada, so if you got a gig in Canada, let's say you were over there for a month whatever you earn in Canada would be taxable in the UK. You'd need to put that on your tax return. You'd need to convert it into pounds, obviously.

Any tax that you might pay in Canada on that income, you get what they call double taxation relief for in the UK. So let's say you, you earned I'm going to do it in pounds, 2, 000 pounds in, in Canada, and you paid 10 percent withholding tax because that makes my life easier to work out 10%.

That's 200 Canadian dollar, sorry, 200 pounds. You would get a deduction for that 200 pounds that you've already paid in Canada on your UK tax return. 

Alexa: [00:15:00] And say that gig lasts a long time, so cruise ship contracts could be up to a year. Does that change the game? 

Andy: Cruise ships. There is something called a seafarer's earnings deduction, which you might qualify for.

So if you're on a ship for, I want to say at least 365 days, I think it is at least 365 days. Continuous days. Don't think it has to be, a full tax year, just a full period of 365 days. Yes, you can have breaks, obviously no one would not expect you to have breaks off the cruise ship. But, but there is the potential there to, to be not taxable in in the UK or in fact, not taxable anywhere.

Alexa: Yeah. You're just bobbing along. 

Andy: Yeah, you are just bobbing along. 

Alexa: If a singer was to take a PAYE job whilst also still being self employed, how does that work in terms of tax and how they can claim certain [00:16:00] expenses?

Andy: When you come to the end of the tax year and you're. preparing your tax return, you're filling your tax return out. Basically what happens is you, you declare all your income from all sources you've got, and you've got different sort of pages to fill in on your tax return. There's your self employment pages where you put your self employment earnings and expenses, make the net profit.

You also have employment pages. So end of the year, you'd get a P60. maybe if you've been there the full year from your employer or maybe a P45 if you've only been there part of the year and basically all that income gets lumped together to give you a total income for the year and from there it's worked out how much tax you have to pay.

Alexa: How can we tell if taking a PAYE job whilst we're self employed is going to be financially beneficial that it doesn't kind of push us over another sort of tax bracket, which means we're actually earning [00:17:00] less or not as much as we think once we've kind of paid everything we owe?

Andy: How can you tell? You've kind of got to predict, really, you've kind of got to look at it and go, well, how much do I think I'm going to make as a profit for myself employment throughout the year? Okay, I think it's going to be that much if I keep the same students, If I keep the same level of income, then this is the profit I expect to get.

So then if I go and take this PAYE job actually, well, that may mean that I'm now a high rate taxpayer, in which case I'm going to start paying a 40 percent tax on some of this income on the PAYE income or or rather, and. I might actually, if I'm earning enough on the PAYE job, I might start paying National Insurance there.

 But if you're paying Class 1 National Insurance, which is Employee National Insurance, you can also pay Class 2 and Class 4 National Insurance, which is Self Employed National Insurance, [00:18:00] but they're on top of each other.

 There are some maximums, but you might end up paying a lot more national insurance than if you'd earned that extra PAYE income as extra self employed income. 

Andy: So it is a question of sitting down trying to forecast and crunch the numbers, but what I would always say is we, we don't have income tax rates of anywhere near approaching a hundred percent.

So even if you're only getting 60 percent of what you earned, it's better than getting 0%, if that makes sense. But it is a little bit diminishing returns as your income starts to go above that 

Alexa: 50k. When is it that we start paying VAT? Uh? 

Andy: Businesses have to register for VAT, uh, when their rolling 12 month turnover goes above when their rolling 12 month turnover goes above.

90, 000 pounds. So not 

Alexa: me then. [00:19:00] 

Andy: Not yet. Not yet. 

Alexa: I like that. I like that. Optimism. Yeah. 

Andy: Yeah. Or actually as well, if you expect your turnover in the next 30 days to be over 90, 000, you'd have to register. But that would be quite a good, that'd be quite a good teaching gig, right? If you've got the next 30 days, 

Alexa: That would be fantastic.

Yeah. And when does a business become limited? 

Andy: Realistically, you can incorporate your business, have it there as a limited company whenever you want to. The main reason that people go down the limited company route is for the tax planning opportunities that it gives. Especially if we have spouses, you know, perhaps one spouse isn't, is working and the other spouse isn't working.

There's the potential to level up income. Between spouses and you can pay a lot less national insurance through a limited company as well rather than being self employed. There's a, [00:20:00] there's an optimal point at which to do it, at which to incorporate your business. And different people have different views.

My view, is that when your taxable income is looking to hit about 50, 000 a year, that's probably the time to start thinking about incorporating the business. And the main reason that you wait till that level is because there's a lot more admin. So as a self employed person, you do a self assessment tax return.

Once a year now going forward, you might have to do a few more tax returns as they're introducing something called making tax digital for the self employed, which will mean you've got to do four returns a year to HMRC. But for now, it's only one. Whereas the limited company, there is a lot more administration, you have to send accounts to HMRC.

for corporation tax, you've got [00:21:00] to run a PAYE scheme because effectively you become an employee of your company. You still have to do a self assessment tax return. You've got to submit accounts to the companies house. So you've probably got at least four times the amount of work to do, if not more.

Everything that you have to do, including the payroll, comes with a penalty if you don't do it on time. 

Self employed, one tax return, one penalty for not doing it on time. Limited company, you can soon wipe out all the tax advantages in penalties if you're not on top of things. 

Alexa: I'd like to ask about the, the variety of things that we can and can't claim as expenses, but I thought maybe we could do it like a generation game checklist, if you like.

And there is so much that it's probably not going to be an exhaustive list, but at least it will give us some idea of the kind of day to day things that we're going to be potentially [00:22:00] using as singing teachers, and whether they can go onto our, onto our list. So I thought we could start with equipment first.

So in our studios, we're likely going to have something like a piano or a keyboard. So when we purchase one of those, can we put that on our claim? 

Andy: Yes. 

Alexa: . This is going to be great for you. It's just a yes or no. 

Andy: I'm hoping

yes. If there's any maybes, I'll, yeah, we'll deal with that as we come through to it.

Alexa: And does that, does that have a limit? Because pianos can get expensive. So if I decided I wanted to buy a baby grand. Would that, I could still claim that even though I could just go and get a keyboard for like £200?

Andy: Yeah, absolutely. So one of the things that we think about, or that we have to think about when we're doing these things when we're putting in claims for expenses is, you know, what was our purpose behind it? If Alexa was going to buy a baby grand [00:23:00] piano, already, or already had a baby grand piano, but then she just happened to use in her her singing teaching business, then that's a little bit more gray there, right?

Because you already had it. So actually you bought it for yourself because you love playing your baby grand piano. The fact that you're using it for business a little bit, well, there might be a deduction that we can get. We'd have to look at it more closely. 

Alexa: Okay. Speakers.

Andy: Yeah. Speakers as in kind of like. 

Alexa: Just playing music. Yeah. Amplification, playing music through for like backing tracks and things like that. 

Andy: Yes, I would say So. 

Alexa: Music stands? 

Andy: Oh, a hundred percent. 

Alexa: Study books. So anything that we can get off Amazon that's helping us to learn something better for our craft. 

Andy: Yes, anything where you're, where there's an improvement thing going on and you can link it to the business. Absolutely. [00:24:00] Now, if there's a business case for these things then, then absolutely, you know, you could, you could arguably say I'm a self employed music teacher.

I'm going to go online to Amazon, buy tax for dummies. Or whatever it may be. Then that's going to be a business expense. 

Alexa: Okay. 

Andy: I don't mean to say that everybody's a dummy. 

Alexa: I was hoping there was a level underneath that book, to be honest. Backing tracks

Andy: yeah, absolutely. Again, if, if the purpose is for the business, if you're buying it for a business reason, then yeah, absolutely. 

Alexa: Great. Props. So we have an episode with Kaya Herstad-Carney from BAST Training all about all the different props we're using in the studio. So we've got stress balls, we've got mirrors, we've got expandable balls, therabands, emotion cards.

wobble boards. I'm guessing all of that because it's studio use we can put in. 

Andy: Yes. 

Alexa: Great. Now [00:25:00] this is an embarrassing one, Andy. I'm not going to lie, but I'm going to ask it because it was a thing for a while and I would always worry about putting it on a claim. There is a technique where you can actually use a vibrator.

on the throat to help with tension release. Now, well, that's a little bit funky to put on your, on your claim, but as it's studio use, can you still put something like that on it? 

Andy: Yes. And just hope 

Alexa: nobody in the office has a good old giggle. 

Andy: Yeah, absolutely. If you've got, if there's a justification for it yeah, then a hundred a hundred percent.

I think years and years ago, I had a client who had a cleaning business and they bought quite a lot of nappies. And when we questioned it, they said, but the nappies are really, really absorbent. So if there's any spills or any messes that we need to clear up they [00:26:00] just absorb better than, than anything else that we use.

So it might not have been designed for that purpose, but if it's being used for business purpose, then absolutely, 100%. 

Alexa: Great. There's a lot of us who use things like straws to blow bubbles into water. It's called an SOVT. It's there to kind of help us do a lot of things in our training and in therapy for voice.

So again, it's studio use, we can claim our straws.

Andy: To the extent 

that you use them for business. If you've got 100 straws that you're buying and use 20 of them to drink, sip your gin and tonic of an evening, then, you know, maybe you would portion the cost, but yeah. 

Alexa: Yeah. It's it's actually weirdly us singing teachers probably use more straws in singing than we do for actual drinking.

So there we go. We can probably claim those quite well. Tissues. There's a lot of crying that happens in a singing lesson sometimes, [00:27:00] and also we can use it for seeing airflow and things like that. Can we claim our tissues? 

Andy: Yes, provided they're being used in the business. Absolutely. 

Alexa: Yeah, we're seeing, we're seeing a pattern here.

So as long as there is something that we can justify it being used for a business related thing, we can probably put it on our claim. 

Andy: Yeah, absolutely. And not just justifying, but obviously actually using it in the business rather than going, you know, here, here is my coffee cup. It's a business coffee cup.

Well, actually isn't the business coffee cup, but, but equally, equally, if you've bought cups for the studio.

It's a business expense, right? These aren't, this is my personal coffee cup. Therefore, you know, it doesn't go through as a business expense yet. I use it when I'm at work, when I'm in business, when I'm running my business. 

Alexa: So if somebody has a home studio and they're decorating it, like I want some shelving, I want some of this [00:28:00] wallpaper, I want to make it have this atmosphere.

Can any of that be claimed? Because it's not. necessary, but it's something that you're doing to create a particular space for a singer to come into?

Andy: Really good question. And again, this is where you'll, you'll get some, you'll get some grey answers on this. If you're decorating it to create the ambience that is right, and if you're not using that space for anything else. Then I think there's a justification and an argument to offset those costs.

If you were to say to me, I'm putting up some specialist soundproofing, , then I would say 100 percent for that. But obviously that's not giving a great aesthetic necessarily. . Similarly, you might be putting in some seating, right? You might put in a, some nice chairs that are gonna help people relax or whatever. Which I [00:29:00] would then say, yeah, those kinds of things I would say definitely, especially if they're just being used for the business.

Alexa: And then something that confuses me a little bit is, is things like, a laptop. So obviously during COVID we were exclusively online, but it is not uncommon for singing lessons to happen online anyway. So how much can we kind of claim for things like a laptop, a laptop camera, headphones, and, and specialist microphones and ring lights, especially also people who podcast as singing teachers.

Andy: Again, we've got things here that potentially have got a duality of purpose, right? You might use it for business, but you might also use it elsewhere. If the prime reason for purchasing something is because there's a business case for it, and if perhaps any other use of it is, is kind of incidental then usually [00:30:00] We would put those on people's tax returns, claim them on people's tax returns.

Now, there's an argument that says, well hang on a minute, you use that laptop 50 percent for business and 50 percent for non business purposes, actually we should apportion that cost. I don't think, to my knowledge, I've seen anything like that challenged by HMRC in the past. I think the last time I saw anything like that challenge was probably 1996.

Alexa: Yeah, because I was going to ask, how do they know? How, how does anyone know what percentage you're using something? Or if you say, well, you know what, I could actually, those are my speakers in my studio, but I'm going to take them to the beach today. 

Andy: It's there's an expectation that, that people are going to be honest with these things. 

Ultimately, it's very difficult to demonstrate. 

If you were talking about, you know, [00:31:00] a car, let's say you bought a car for business, but used it privately as well. Actually, you could keep a mileage log, a detailed mileage log, which you could then compare against the mileage on your MOT certificates when they come through.

Yeah, there's still an element of trust there that you're going to record things properly. And you would hope then your business trips would match up to your diary where you went to see that client so that you can say, well, yeah, look, it's in there. It's in the diary. I went to see that student on that day and they live in Epping Forest or wherever it is.

And that's the round trip to Epping Forest. And that's the mileage I did that was business. 

Alexa: And speaking of travel, in terms of the mileage that we can claim, what's the current petrol price that we can claim? 

Andy: So yeah, so talking about mileage generally the, the best thing to do is literally just to claim mileage on your tax return for the miles that you do.

And at the moment, it's 45 pence per mile for the first [00:32:00] 10, 000 miles and then 25 pence per mile thereafter. 

Alexa: Okay, and What about the person who may have purchased an electric car? How do they claim stuff? 

Andy: I'm pretty sure I'm gonna have to, I'll have to check on this one. And I might come back to you later, but I'm pretty sure you can still claim the 45 pence per mile 

 If it's hybrid, definitely you can claim the 45 and 25. If it's fully electric, I think you can claim the 45 and the 25, but I would need to check on that Alexa.  

Alexa: Just a quick one. After our conversation, Andy did some digging and confirmed that the mileage rate for petrol, diesel, hybrid and fully electric cars is 45 pence per mile for the first 10, 000 miles and 25 pence per mile thereafter. Thanks, Andy!

We've touched upon the fact that anything that helps us [00:33:00] improve our skills, that is a a claimable thing.

So things like courses, anybody who comes onto the BAST Level 5 course, or our foundation, or if we go and sign up to a membership, I'm guessing all of that is claimable. Yeah. 

Andy: Absolutely. Great. Anything where you're improving your skill set. 

Alexa: , We also might have to pay a data protection fee to the ICO, especially if we're keeping recordings of lessons where people can be identified.

I think that's about £35 a year if you're on a direct debit or something. Can that be claimable too? 

Andy: Absolutely, 100%. 100 percent of business costs, no doubt about 

Alexa: it. Great. And then for the singing teacher based in their own home again, things like electricity, gas, council tax and water bills, can we claim any of that?

Andy: So there's a couple of ways to look at this. HMRC a few years ago, they published some what they described as [00:34:00] kind of approved rates for working for expenses to claim when working from home to cover the bills, bits and pieces. 

 So there are approved rates that HMRC publish that you can claim . against your income.

They're not the most generous of rates but they are set usually around the amount of hours that you work. In your home so that those are available online I think generally they're there for or they're originally there for employed people and it was introduced around covid time because obviously a lot of people working from home during covid but I'm fairly sure that HMRC accept them for the self employed as well.

General practice that, that many, many accountants have done ever since I entered the profession, which was 30 odd years ago. Just to say, well, actually it's, I'm just going to put in a claim for 5 a week, 10 a week, 15 a week, whatever it may be, whatever feels reasonable. And [00:35:00] I think again, in my 30 odd years in the, in this game, I think I've only seen that challenged once. 

And then the other thing to do, if you want to be really, really precise about it is to tot up all your bills for, for running your home. Look at the space that you're using and And come up with a fair and reasonable apportionment of of those bills if you want to do all the work but i'm guessing for for you creative guys, this is not the kind of thing that you want to be spending your time on 

Alexa: I'm asking this question because I'm hungry.

So when can we claim for food? Is it, when we're working from home, obviously we're getting in things for lunches and you know, snacks to keep us going. If we were out on a job and we were buying food, does it work differently? Can we claim for our, for our lunches and things? 

Andy: Yeah, so, subsistence travel and subsistence, again, it's something that HMRC they wouldn't [00:36:00] like you going for a big boozy lunch.

Alexa: Oh, nuts. 

Andy: While you're out. If you were traveling somewhere overnight, Obviously, costs of, you know, accommodation and meals are fine. I think they even suggest in their guidance somewhere along the line that, you know, a single glass of wine with your dinner would be, you know, okay. If you're out and about and you're getting on a train and you're going somewhere to see as a student, or you're going up to a training or something like that.

And it's reasonable to assume that if you grabbed a coffee and a doughnut on the way or something like that, or a sandwich at lunchtime, and if you're out for the day, then it's reasonable to claim an amount for 

Alexa: lunch. But if I decided that all between my clients at home, I'm going to go down and open that packet of digestive biscuits, I can't really claim that.

Andy: No. 

Alexa: Okay, fair enough. [00:37:00] What about things like buildings insurance, contents insurance, phone bills? 

Andy: Yeah, so again, you would expect a lot of that to come under that kind of use of home allowance if you could bring it into that. If you have a separate landline for your business I landline.

landline in, I can't think how long, really. So, you know, most people will, will put the cost of their mobile phone through their business. Again, you know, if you're using it mostly for business, you probably put a hundred percent through, but if you're actually using it like 50, 50, I'd put half the cost through.

Alexa: And for people who have got other singing teachers as part of their business, maybe they're paying them a wage. Can that be claimed other people's wages or paying for the training? 

Andy: Yeah, yes so HMRC would much prefer everyone to be on PAYE because they get a lot more tax and [00:38:00] national insurance because not only does the employee pay tax and national insurance, the employer also pays another 13. 8 percent national insurance just for the privilege of employing people.

So, Thank you. When HMRC come across people who pay subcontractors, let's call them in this particular instance, so you may run a singing school and you bring in all these self employed teachers to teach your students, HMRC may come along one day and say, well hang on a minute, we don't think all these people are actually self employed.

We think that the contract that you've got going on bears the hallmark of employment. And therefore you, the employer, should have been deducting tax and national insurance. You haven't been, and therefore we would like you, the employer, to pay over all the tax and national insurance that you should have done.

But of course you've already paid the your, your self employed teacher 100 [00:39:00] percent of what they've earned, so suddenly you're massively out of pocket. That's a, that's a danger just to be aware of. But whether you're paying them under PAYE or whether you're paying them as self employed, it's still a business expense.

Alexa: We've spoken about duality of purpose and to an extent our voices as singing teachers and vocal coaches. is a dual purpose. It's not something we can take out of our throats, unfortunately, and get put on the shelf until we need to use it again.

So when it comes to things like vocal health care, whether that is through using one of these, like a nebulizer little kit for hydration or a steamer, or even getting a scope or a vocal massage where it comes under maybe more medical terms. How much can we claim of that? Can we, can we put that on our expense list or is it a case of, well, unfortunately we can't claim for stuff like [00:40:00] that.

Andy: Okay. So I would say that generally that's a kind of a, I don't really want to call it a grey area. I want to call it a light grey area. There you go. Because yes, you could use these things in the everyday. But you're only, you've only got them because of your profession. You're only having that, buying that piece of equipment having that massage, whatever it may be, because of your profession.

Otherwise you would not spend that money. We've seen lots of these kinds of things over the years. There was a case about a lady barrister. who wanted to claim the cost of her wig and her gowns on the basis that, that she she wouldn't, wouldn't dream of wearing them, you know, outside of a, a courtroom scenario.

But she was refused on the basis that they're clothes and she could wear them [00:41:00] outside. I think nowadays, HMRC are a little more relaxed about these things, especially The kind of things that we're talking about. So I think it's reasonable. And that case was dating back a long, long time. So, but nowadays it's more reasonable to, to put through things that are relevant for your for your profession.

Alexa: How do you advise that we go about keeping our books in the most efficient way in terms of Is it, is a bank statement enough to prove the purchase for the business? Or is there, is there a better way that we should be doing this? 

Andy: So first and foremost, I always have a separate business bank account. So separate from your normal bank account.

Secondly, is the bank transaction enough? No, it's not, unfortunately, because it doesn't tell you the nature of the transaction. So you could buy something from Amazon. And it could be a help. It could be a [00:42:00] DVD that's got nothing to do with your business, but because it says Amazon and you've paid through your business account, you know, you're saying, Oh, I want to claim it, but actually it's not, it's really, really important to get the any purchase receipts, any purchase invoices to back up what you're spending.

Alexa: And is there any accounting software that you would recommend for us to do that? 

Andy: I really like something called Dext Solo. D E X T, new word, Solo. And it has the advantage that you can if you're out and about, you're at Starbucks, you've bought that coffee, whatever it may be, you get the receipt, pick up your phone, take a picture of it, In the app and it's being recorded, and then you can screw up the receipt and throw it away.

And then you haven't, so you can record it in the moment [00:43:00] and then you haven't got to worry about it, or you haven't gotta go home and put it in the envelope for the month with all those other expense receipts, whatever it may be. And not only can you take photos, you can kind of email in stuff. So, and yeah, there's, there's kind of lots of different ways to get the document into Dext, so again, Amazon, you might log on to your Amazon account, download the invoice, drag and drop it into Dext on your desktop. So it's a really great way of collating everything in one place. And Dext will look at it and say, Oh, that's an Amazon receipt.

Oh, that's a Starbucks receipt. and it will look at it and it will perhaps suggest the expense category that it should be allocated to. So then at the end of the year you can download from Dext a list of all your expenses, analysed as it thinks they should be analysed. You can change that if you need to.

But it's a really, really great way of collating all your [00:44:00] purchase invoices and receipts, which will back up your expenditure. 

Alexa: The thought of being audited can be very scary. Can you help us to understand what we need to have in place to pass that audit? And also, in alignment with GDPR and HMRC, how long we should be keeping records of payment histories from our clients?

Because there is some software that singing teachers use, something like MyMusicStaff, which doesn't let you delete. details of clients because of the GDPR payment history, which they say is in alignment with the GDPR rules. But yeah, just good to kind of get your, your understanding of that. 

Andy: If you're using specialist apps which are effectively collecting money and payment history from, from for your students, that's really great because that's like a third party thing.

So in the event that HMRC come and say, okay, we want to have a look at your [00:45:00] books and records, Alexa, and you go, okay, brilliant. Here's Dext. Here's all the receipts, which I can download or I can give you access to that. Here's my payment history. I only collect money through you mentioned the app. I can't remember what it's called.

Yeah. 

Alexa: It's MyMusicStaff. We don't collect money through it. They pay into an account, but you can log. log who's paid what. 

Andy: . So you're recording the sale, effectively the sales income in that app and provided that matches your bank statement, happy days.

The only issue comes with that is if you, if some money comes into your bank statement, you've forgotten to record it. In the app, that's where there's suddenly there's a disconnect. So most people nowadays rarely get paid in cash. So a bank account, if, is, is a good place to start for actually tracking your income recording if they're always paying into that bank account.

Alexa: And how long should we be keeping those [00:46:00] details for? 

Andy: Definitely for tax purposes the answer is five years and 11 months after the end of the tax year. 

To which they relate. The reality is five years and eleven months, let's call it Sorry, it's not five years, eleven months, five years, ten months.

It's six years. If you just say six years after the end of the income tax year, you, you won't go far wrong. 

Alexa: And then it's a case of you have to delete them? 

Andy: . So, for tax purposes, you don't have to delete them. For GDPR purposes, you only need to keep records for GDPR purposes for as long as you require them for any other legal purpose.

So in theory, you would then delete them, I guess, for GDPR purposes at that six year point. 

Alexa: What would be your top tip for somebody completing a self assessment tax return then? 

Andy: My top [00:47:00] tip, absolutely 100%, is do not leave it till the last minute. 

Alexa: You get the January 30th's thinking, oh shit. 

Andy: Do not leave it till the last minute. Number one, you might have a problem. filing it, you might have a problem with the internet, you might suddenly realise you've got some stuff missing that you need from somebody else and you can't get hold of it.

Also, if you do your tax return as early as possible, what you get is clarity. You know how much your tax bill is going to be on the 31st of January. And if you've got to make payments on account, you know what your 31st July payment's going to be. And you know that well in advance. If you don't do your tax return till the last week in January, you won't know if you've got enough money.

So that creates uncertainty. And if you're feeling uncertain or anxious, you're not going to perform as well in your business, right? 

Because [00:48:00] you'll be worried about other stuff. So get it out of the way nice and early. If you can get it done in your, the ideal time, I guess, for you guys, if your quiet months are July and August, the ideal time to be doing your tax return is July and August.

There's no reason not to be able to do it at that time, at that time. 

Alexa: As an accountant yourself, you say that you support individuals with their tax compliance needs, with an eye towards finding opportunities to reduce the tax bills within the confines of the law. So without being all Jimmy Carr about it, what's a piece of advice that you can give us, to us creative folk, with regards to lawfully reducing that tax bill?

Andy: Number one, definitely collect all your purchase invoices and receipts. Even if you think, I'm not sure if I can claim that. Actually, if I have a conversation with Andy or someone like Andy, they'll be able to point me in the [00:49:00] right direction or talk to me about the risks or whatever it may be. And yeah, again, especially if you're out and about, make sure that you're, you're clicking those receipts so that you can offset any expenses that you might not otherwise have thought about.

You're creative people, think creatively. I would rather clients came to me with questions. I'm thinking about buying this. Can I put that through the business? I'd rather they came to me and asked me that question. And I said, no, not something we can do because X, Y, Z. I'd rather have the question asked than not.

And as we've talked about, you know, what can we offset against our, our business expenses. The list is, is, is It's a piece of string, I guess, right? We just don't know because we don't know what's relevant. 

 So think creatively because you're creative people.

And ask, be inquisitive. 

Alexa: [00:50:00] Tax and living a self employed life doesn't get taught in school, although I think it's something that is being addressed in some drama school institutions for sure. There's useful information on the likes of Musicians Union and the Independent Society of Musicians websites, and I'll pop their links in the show notes.

Is there anywhere that you'd recommend us checking out for more information on the subject? You've given us a lot there to ponder, but if there's anything that you can recommend for further reading, which isn't maybe as dry as a stale cracker, that would be great. 

Andy: Most of my tax information, given, given that I am in a less creative industry, so most of my tax information that I source from either a lot, there's a lot of technical reading that goes on either with HMRC or with with some of the big tax publishing houses.

So, sadly, not. 

Alexa: Yeah, come, come to you directly is probably the answer. [00:51:00] That 

Andy: is probably the answer. Yeah, come to it, have a conversation. I mean, that's, that's the thing. It's really having conversations, having communication. So if if people are engaging with an accountant who's acting on, on their behalf, you know, talk to them, pick up the phone, just don't make it a kind of transactional relationship.

Have an open communication kind of relationship and and, and speak to each other.

Alexa: . Well, Andy, where can people find out more about you and the services that you offer at AKM Accounting Solutions? 

Andy: Well, we've got the website, which if you type in AKM Accounting Solutions, you'll find that.

But, I'm most active on LinkedIn. And I believe I am unique. So there is only one Andy Muckett that you'll find on LinkedIn, and I am he. So yeah, by all means connect with me on LinkedIn. Love making connections. And if anyone's got any questions, oh, please by all means DM me. 

Alexa: [00:52:00] Great. Well, Andy Muckett, thank you so much for your company today and, and for the reminder that I need to get my tax return over to you.

I'll get onto that pronto. 

Andy: You're welcome. It's been lovely to be here and lovely chatting with you, Alexa.