All self-employed individuals will need to submit a tax return to 5th April each year. These need to be completed by the 31st October in the same year if submitting a paper return, or by 31st January in the following year if filing on-line.
Tax is payable on 31st January and 31st July. In an ideal world we all have put aside enough to settle our liabilities, but often the payment due on 31st January is the killer. It invariably consists of two ingredients – the shortfall on a previous year and a payment on account of the current year. For the actor this creates real hardship. The actor’s income is most certainly not consistent and he has to cope with long spells of unemployment. One does not need to be an accountant to appreciate that a payment on account, which is based on a previous year’s income, usually bears no relation to the actual income earned. The punitive aspect of this arrangement is that one is paying tax on 31st January, which is about two months before the end of one’s tax year – 5th April. If an actor has had a rotten year, he can make a claim to reduce the payments on account. If he proposes a lesser payment than what is eventually the actual figure, he is then penalised and charged interest on the shortfall. The problem is that by estimating a year’s income on 31st January, he has to assume his earning potential in the remaining two months of his tax year. If, for the luckier actor, he is able to get a commercial in these two months and commercials mean big money, his estimate is wrong and the taxman reaps the benefit of the sudden commercial.
It is very important that some income is put aside to cover the tax liability that would be due in the following year. As income from such professions can fluctuate from year to year a performer may have to pay a lot of tax relating to a previous year in a year when they are hardly earning and if they haven’t put money aside in the good year they may then find it difficult to come up with the money due. The amount to put aside will depend on current/expected earnings and could be anywhere between 10-50% depending on levels of income.
Under the tax self-assessment system the taxpayer does all the work for the taxman and the taxman then merely sends out tax demands based on figures that the taxpayer has provided. From time to time the taxman may decide to embark on an investigation into an individual taxpayers affairs.
There are a number of reasons why the taxman may start an investigation such as:
1. The individual receiving tax refunds year after year,
2. Figures submitted are inconsistent with previous years,
3. The taxman receiving details of earned income from an employer or theatre company which clearly isn’t included in the individual’s accounts,
4. Or merely an investigation at random.
Just starting out? See part two of our blog post soon……
Kevin Beale – October 2012
The content of this article is intended for general guidance only and represents our understanding of current law and HM Revenue & Customs practice. No responsibility for loss by any person acting or refraining from action as a result of this article can be accepted. We cannot assume legal liability for any errors or admissions this article may contain.
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Arts and Entertainment