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Any tips for doing my accounts?
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Amber
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4th November 2011
Old 4th November 2011
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Any tips for doing my accounts?

So I've pretty much never done my accounts when I've mentioned expenses since they've never really been there. I've just declared what I've earned and that's it. I work as a composer with a super simple setup.

A bit stupid but I would often sell gear anyway.

I'm in the UK, self employed, not a LTD company, not VAT registered etc.

How do you guys deal with your expenses? I've read some people say things like they know they will owe roughly £2,500 tax at the end of the year and then they'll spend that amount on gear so their tax bill is next to nothing. Is this really how it works?

I've realised I can run my mobile phone, broadband etc as expenses. Can I claim flights to LA for meetings?
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4th November 2011
Old 4th November 2011
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4th November 2011
Old 4th November 2011
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The best advicse i can give you is to hire A CPA in your area , so he knows all the tax laws in your area. Save all receipts and let him decide what you can deduct legally.

To answer your question, my CPA handles all these things. I see him every 3 months and he takes good care of me
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4th November 2011
Old 4th November 2011
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Cool Jules, checking it out now.

Also, something to add. How do you other guys in the UK take payments from clients abroad? I've actually never had a client in the UK. I've taken payment via Paypal in the last couple of years but hope there's a better way.
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4th November 2011
Old 4th November 2011
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Quote:
Originally Posted by Amber View Post
So I've pretty much never done my accounts when I've mentioned expenses since they've never really been there. I've just declared what I've earned and that's it. I work as a composer with a super simple setup.

A bit stupid but I would often sell gear anyway.

I'm in the UK, self employed, not a LTD company, not VAT registered etc.

How do you guys deal with your expenses? I've read some people say things like they know they will owe roughly £2,500 tax at the end of the year and then they'll spend that amount on gear so their tax bill is next to nothing. Is this really how it works?

I've realised I can run my mobile phone, broadband etc as expenses. Can I claim flights to LA for meetings?
cant speak for the uk

in the colonies the IRS lets you deduct a LOT for gear that is USED TO MAKE INCOME YOU PAY TAXES ON. So yes, a lot of people who have a big profit will spend a lot on gear and take it right off the INCOME, up to the point they barely have to do taxes. Ideal is to have some profit but not so much that you need to fill out the other forms for medical and retirement aka SS and medicrap.

But most folks have a job and income on the side. You can only do this for your self employed side income.

And if you dont make profit in enough years in a row expect them to audit you big time.
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4th November 2011
Old 4th November 2011
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Quote:
I've read some people say things like they know they will owe roughly £2,500 tax at the end of the year and then they'll spend that amount on gear so their tax bill is next to nothing.
It doesn't work like that - you just don't have to pay tax on that amount.

If you approximate the tax rate to be 25% and you spent £2k on gear then your tax bill would reduce by approx £500 (but you'd still have spent £2k)
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4th November 2011
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Quote:
How do you other guys in the UK take payments from clients abroad?
I always just get a transfer done made into my account. (BACS or similar)

The only issue is some companies wont pay out unless you submit a tax declaration (eg France) which can be a PITA.
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4th November 2011
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In reply to your thread - stating the obvious I'd say get an accountant.
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5th November 2011
Old 5th November 2011
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1. Simply Books would be my go-to package for the UK. They also do other packages and their insurance offers are very good indeed.

2. What you really need is a proper education in how to run a business. I suggest that you enrol in a few courses and generally read up on this subject.

3. In your specific questions on expenses, you can deduct any and all LEGITIMATE expenses from earnings.
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5th November 2011
Old 5th November 2011
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I don't have the time to take classes right now, nor the funds to be honest but if anyone has any books to read on the subject, I'd love to check them out.
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6th November 2011
Old 6th November 2011
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Quote:
Originally Posted by Amber View Post
I don't have the time to take classes right now, nor the funds to be honest but if anyone has any books to read on the subject, I'd love to check them out.
I can recommend a music-specific accountancy service in the UK. A decent accountant will save you more than you pay them, in some cases a LOT more.

And yes - any and all expenses that are to do with your work, you can claim. If you're going to LA purely for the purpose of work, you can claim 100% of the cost back against tax.

You basically declare your full income, declare what you spent in pursuit of said income, take off £4ksomething of taxfree income and pay tax on the rest. But an accountant will also help you take into account depreciation on any business assets (eg a car), the use of a spare bedroom as an office/studio (you can claim back a portion of your rent/mortgage), and so on.
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23rd November 2011
Old 23rd November 2011
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So just got a few more Qs about expenses etc.

I want to keep business expenses payments on my business account just to keep things simple.

Can I top up my mobile from my business account as an expense? All the calls etc won't be for business. Do HMRC ever check?

What about a guitar pickup and an audio interface?
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23rd November 2011
Old 23rd November 2011
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Do you need an audio interface and a guitar pick up to do you job?
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23rd November 2011
Old 23rd November 2011
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I want a noiseless pickup because the single coil I have is too noisy. I do need a new audio interface.

What is the difference between a studio buying gear and gear that is classed as expenses?

If someone upgrades RAM is that an expense?
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23rd November 2011
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In general, you can claim a business expense for anything that directly supports your business, either day to day or in terms of upgrades to enhance your business.

I'm not sure how it is in the UK, but in the US we have a lot of places like the SBA where small business owners can go to learn (for free) about running a small business. Actually, a quick google search turned up this which looks to be similar:

The Federation of Small Businesses - FSB - The UKs Leading Business Organisation

I HIGHLY recommend you take advantage of a professional's advice on how to run your business. In the nicest way possible, it sounds like you don't have a clue about the legal aspects of running a legitimate business. Unless you take immediate steps to learn the right way to do things like your books and what you can claim for expenses, it WILL come back to be a very costly mistake in the end.

Take a week and just focus on what you need to be doing to run your business the right way. Posting on Gearslutz doesn't count
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23rd November 2011
Old 23rd November 2011
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I don't have a clue. I've always just put down my income and not bothered with expenses since I never really had any. I have broadband but that comes out of my girlfriends personal account.

But I want to try and grow my sole trader composer business and maybe have a slightly more sophisticated of a setup (I own less than £1,000 worth of gear) and invest in some mics and various odd less known instruments.
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24th November 2011
Old 24th November 2011
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But you do have expenses! Broadband (in part) travel and purchase of audio equipment. Then there is the heating and lighting for your studio or whatever room you use to make music.

The question you have to ask, is - is it worth your while to put your music making activities on an official footing? If you are earning more than a couple of thousand p.a. then the answer has to be yes. Mostly, of course, you are committing an offence by not declaring income.

It seems that you have been declaring income as 'incidental' up until now and the time has come for you to step up to the plate and do things properly. That means becoming a sole trader and doing proper accounts.

Accounts - beginners get easily baffled, because there are a series of conventions and rules that all accountants and business people comply with that have to be learnt first, before you can start entering figures in your copy of 'Simply Books' or whatever you go for.

The 'good' books that get all the rave revues on Amazon, are those that get praise from the pedantic world of accountants and book-keepers, but often fail to tell the absolute novice what the hell 'balancing' is all about, or what a 'chart of accounts' might be, when and if it is at home!

From the 'Teach Yourself' series - 'Understand Tax for Small Businesses' is pretty much written for the absolute and total novice who barely understands anything! In your case, that would seem to be the most suitable in-road into understanding the absolute principles of what, where and when of taxes in the UK. £6 on Amazon.

'Bookkeeping for Dummies - UK Edition' would be my second step in your case. It is nice and simple and logically laid out for the total novice. About £11 on Amazon.

Get both! Start with 'Understand Tax for Small Businesses'.
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24th November 2011
Old 24th November 2011
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I work from the bedroom so will have to read more into claiming heating etc.

I will check out both those books. I have always declared stuff, but from now on and 2012 I really want to expand, get more work and hopefully get my O1 visa.

A couple of questions though. Is it common for a studio or producer to buy more gear with the knowledge that they would just be paying a load of tax at the end of the year? And what stops someone ramping up their expenses to lower their end of year tax payment to HMRC then returning that gear?
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24th November 2011
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Quote:
Originally Posted by Amber View Post
Is it common for a studio or producer to buy more gear with the knowledge that they would just be paying a load of tax at the end of the year?
I'm not quite sure what that question means! If you are running a commercial enterprise, be that as a sole trader or limited company, or any other form of enterprise, expenditure is deductible from turnover. £ coming in is turnover, £ going out is expenses, the difference is profit and that is what you end up paying taxes on.

Quote:
Originally Posted by Amber View Post
And what stops someone ramping up their expenses to lower their end of year tax payment to HMRC then returning that gear?
The law. Also, you will probably be doing your books, based on your money flow, so you will not be able to deduct expenses for items not paid for. If your books are invoice-based, then you will have £x costs in one year and then an £x credit note from the supplier in the next.

Failure to declare the one or the other does not necessarily require an audit to be flagged up, as the Inland Revenue have access to both your books and those of your supplier. An entry for costs in your books can be compared to an entry for revenue against your name in the books of your supplier. Even Thomann in Germany keeps a set of VAT returns for the UK.

In the UK, you can carry losses forward from one year to the next to offset profits.
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24th November 2011
Old 24th November 2011
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Okay, I get it a bit more now.

I plan to possibly take a trip to LA in 2012 for some pitch meetings. Would I need proof of meetings for HMRC to prove that the flight, hotel etc was business related and an expense?
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24th November 2011
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You will need all relevant documentation. If you are pitching for a contract, this is obviously a legitimate business expense, but just as obviously, is open to abuse. When I travel, I always keep all supporting docs and attach them to the various invoices. It soon adds up - car rental, flights, hotels. You may be asked, in the case of an audit, or even just when doing your annual returns, for supporting documentation.

I must at this point, state that I do not do the books for my company. They are prepared by a member of staff and go through accountants for each country we have dealings in. Almost certainly, you will need to have your annual accounts prepared by an accountant, but read those two books first. If all you are doing is incurring a handful of expenses and getting a small handful of cheques as turnover, you may find that being able to your books yourself is a useful skill and having them done by a bookkeeper can be both expensive and a source of error.

Most small companies with ten or fewer employees (and that's 95% of all companies in the UK!) do their own books, but get the annual returns done by an accountant.
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24th November 2011
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I will definitely getting an accountant to do my annual returns going forth.

Really appreciate all the info you've given me. I think I'm more scared of doing something wrong than anything. I do plan to take a trip to LA next year to meet up with some people and pitch my services. My girlfriend would probably be coming with me also. How do people split the business/pleasure part of trip like that? (Obviously my flight would be paid seperate) Or is it simpler just to say it was all business even if you went to the beach one day?
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24th November 2011
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All business, but don't include the girlfriend - i.e. just your ticket and your hotel bill, etc. In other words the truth!!!

One excellent reason for going to an accountant in any country, is that he or she is responsible for those accounts and is therefore very unlikely to knowingly try to lie or make mistakes. For that reason, the Inland Revenue, or any other tax office is unlikely to audit you, as they know that they are unlikely to find anything that is not as it should be. They see the name of a respected accountancy practice and know all is well!

Conversely, if you take a DIY approach to your annual accounts, they are very likely to turn up on the doorstep, badge or ID in hand, asking for the mandatory desk, chair and all paperwork.
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25th November 2011
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Agreed, having an accountant do at least the annual returns will more than likely pay for itself and then some over time. If you don't want to pay for an accountant every time you need advice on keeping your finances straight, there are dedicated Book Keepers who will help you set everything up from the get go for much cheaper. Do that once when you start to make sure all your accounts and basic questions get set up/answered properly, then go to an accountant at tax time.
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28th November 2011
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I have a credit card and a checking account specifically for the studio. Buy everything with the card, pay for everything with the checks - it leaves a good paper trail that makes it way easier for the accountant. No need for a shoe box full of receipts. Their time is money too.
I wouldn't say you have to show a profit in order to avoid a knock on the door, but you should show any and all income if you are claiming expenses. Several years of showing no income will get them to classify you as a hobby instead of a serious business, at which point they will dis-allow any expense deductions. It's ok to show/take a loss, though you still may have to pay some tax.
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2nd December 2011
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I have a question that might have a really obvious answer.

If I want to put some of my own money into my business account from savings in cash/bank account to cover expenses etc, am I okay to do that? Won't it look like income?
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2nd December 2011
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You can do that, you just need to log it in your accounting software as Owner Draw (at least that's what Quick Books calls it). Again, a book-keeper can help you set up your accounts properly to cover common situations like this so it doesn't come back as an issue at tax time.

Doing this actually DEDUCTS from the listed total profit your company makes during the year, not adds to it.
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2nd December 2011
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I thought owner draw was when you took money from the business account to put in your personal account? I've done this already and had my business account make a note on the transactions as 'wages' just for reference in the future.

I want to do it the other way around, put some of my own money into the business account to cover expenses etc. Maybe it's called owner draw in both cases though?
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3rd December 2011
Old 3rd December 2011
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Quote:
Originally Posted by Amber View Post
I thought owner draw was when you took money from the business account to put in your personal account? I've done this already and had my business account make a note on the transactions as 'wages' just for reference in the future.

I want to do it the other way around, put some of my own money into the business account to cover expenses etc. Maybe it's called owner draw in both cases though?
When I do this (sometimes my business account is low on cash but I have PAYE income in my personal account) I account for it in a non-taxable column on my accounts spreadsheets - and I borrow it back the same way, so it's accounted for, but not counted as income.

I call my wages "personal drawings"....
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3rd December 2011
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It's confusing,but the term owner draw refers to any personal accounts associated with the business, either withdrawal or deposit.
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