Tax tips for self-employed professionals in the creative industries

The UK’s creative industries, which includes film, fashion, performing arts and publishing, have a strong reliance on project-based work, which means the sector has a much higher level of self-employment than the overall economy.  

Government data shows 32% of creative industry workers are self-employed, compared to 16% of the total UK workforce.   

Understanding self-assessment for creatives 

Self-employed workers in the creative industries are required to register with HM Revenue and Customs (HMRC) as self-employed and submit an annual self-assessment tax return. 

It is crucial for self-employed creative professionals to comply with these requirements, or you might face financial penalties. 

Self-employed or employed? 

To qualify as self-employed, you need to ensure your work can be classed as self-employment. Your contract arrangements might mean you are actually employed and subject to paying income tax and National Insurance through the employer’s PAYE.  

The off-payroll working rules, often referred to as IR35, exist to ensure a contractor or freelancer does not class themselves as self-employed when they are really an employee and should pay the same taxes as other employees. 

To check if you are classed as employed or self-employed for tax purposes, use HMRC’s Check Employment Status for Tax (CEST) tool. 

Registering with HMRC 

You need to register for self-assessment by 5th October in your business’ second tax year. You will be asked to provide personal information such as your name, address and National Insurance number, as well as details about your self-employment work.  

HMRC will send your unique taxpayer reference (UTR) in the post, or you can view it in your online account. The UTR is required to submit a tax return and will be used in all correspondence with HMRC. 

Key tax dates and deadlines for creative professionals  

There are various dates related to self-assessment and tax payments that self-employed creatives need to be aware of. Failure to meet these deadlines can lead to financial penalties.    

For full details, read this article about keys dates for self-employed people. 

 

Common tax deductions for creative professionals 

Self-employed individuals can deduct certain business expenses when submitting their self-assessment tax return. This reduces your trading profit and tax payments.   

The rules vary for claiming expenses, so speak to an accountant to ensure that you comply and claim what you are entitled to.  

Home office and studio expenses 

Among the allowable expenses creative professionals can deduct from their trading profit are those related to using a home office and studio. Examples include: 

• business phone calls 
• gas and electricity bills 
• broadband costs 
• studio space rent 

Equipment and materials 

Equipment and materials that can be deducted as expenses include: 

• art supplies such as paint and canvases 
• computers and laptops 
• software 
• technical equipment like microphones and cameras 
• musical instruments 

Travel and subsistence 

Creative professionals can claim travel and subsistence-related expenses include: 

• transportation costs 
• accommodation costs 
• meals when travelling for work  

Managing fluctuating income 

Self-employed workers in the creative industries often have variable income which makes it hard to budget.  

To manage fluctuating income, you should understand all your regular outgoings so you know how much money you need as a minimum. You can then budget for your lowest monthly income.  

You should also understand high-cost periods when you need extra income and can plan accordingly.  

Creating an emergency fund is helpful. If you have money left over from a good income period, add it to the fund so you have money to cover unexpected expenses or lower income months.  

Setting aside funds for taxes 

Planning for your tax payments will help you avoid stress when your tax bill is due. 

You should put money aside each month for your taxes. The Government has an online tool for working out how much that should be.  

Using professional help 

While it is possible to manage your taxes and finances yourself, working with an accountant can be highly beneficial. 

Benefits of professional tax services 

Being self-employed in the creative industries can be complicated and time consuming. Working with an accountant helps you manage your finances, monitor your cash flow, comply with your legal responsibilities, prevent tax return errors and avoid late payment penalties. 

Choosing the right accountant 

When selecting an accountant, look for one who has experience in areas relevant to you such as creative industry tax support, and freelance tax advice. 

Working with an accountant based near you is beneficial because it is easier to meet in person and they will have a good understanding of the local business environment. 

Find more advice on finding an accountant here. 

Beyond tax 

Financial planning for self-employed creatives isn’t just about managing taxes. 

Cash flow management 

Managing your cash flow is vital to making a success of self-employment. If it isn’t proactively managed, you can suffer from cash flow gaps and a shortage of money to cover all your costs. 

A key factor in this process is a cash flow forecast. You can use it to plan how much money you expect to receive, and how much you expect to pay out, during a specific period of time. 

The key steps for creating a cash flow forecast are:  

• Decide on the forecasting period, such as the next six or 12 months   
• List all your expected sources of income  
• Estimate your anticipated expenses  
• Calculate your net cash flow for each month  
• Identify potential cash gaps and surpluses   

Discover more tips in our guide about cash flow management. 

Retirement planning 

It is important to think long term when it comes to your finances, so you are prepared for retirement. Your options include: 

• Individual Savings Accounts (ISAs) 
• Pensions 

Financial Planning by TaxAssist offers expert advice on retirement planning.  

Tax help for self-employed creative freelancers 

At TaxAssist Accountants, we understand the financial and tax challenges faced by creative professionals. With years of experience in the creative sector, we offer tailored advice and services to help you manage your finances and maximise your tax efficiency. 

Contact us to learn more about our services and to book a free initial meeting.    

Last updated: 27th August 2024