Any tips for doing my accounts?

[drBill]

Something to look at. My CPA set up my studio business as a rental business. Rentals are not subject to social security tax and also have some other advantages. For every dollar that comes in from studio "RENTAL", x% is accounted to me as "wages", and "XX" % is accounted as studio RENTAL income. Made a HUGE difference on my tax liability when he took that approach. Honestly, all it took was really getting him to understand what it was I did and how I did it.

To echo everyone else. You WILL end up with a good accountant. Once you get hammered with a 20k tax bill in one year, you won't be taking the "do it yourself" & "I don't really know anything about accounting" approaches anymore. It may be sooner, or it may be later, but there's no doubt. Unless you enjoy paying significantly MORE than your fair share. Get one sooner, save now, and sleep well.

[Amber]

I'm nowhere near ending up with a 20k tax bill yet! To be honest, my biggest concern was having everything legit.

[Amber]

Sorry to bring this back up, but I've bought a guitar from abroad to add a PRS/LP sound. If I end up paying customs and import duty, is that considered an expense?

[The Byre]

Obviously - assuming that this guitar is a genuine business tool. Please remember that a hobby is not a business.

Have you read those two books yet?

No?

Get on with it!

[Amber]

I will do but been too busy with doc music and my eyes are fried after a day at the screen.

[The Byre]

What on Earth is doc music, music to play doctors and nurses by?

[Amber]

Yeah, helps them relax while performing surgeries etc.








Joking, music for documentaries / education vids etc. Think I've spotted a gap in the market however.

[The Byre]

(Sound effect of penny dropping!)

I just hit chords on the Korg Karma - ideal for those 'musique en kilo' occasions!

[void1985]

I use Billings 3 for Mac. It's great!

[jazzdog]

When I started out I had an accountant, but after a couple of years I had a fairly good idea about what was needed, so I started doing it myself. My situation is pretty simple, so I read a couple of books and whenever I wasn't sure about something I rang the tax office and found them to be very helpful. Now there is an awful lot of information on the hmrc website, but I'll still give them a ring to check I've understood something correctly.

[Amber]

Okay so I'm just buying the Teach Yourself book now as I've had a minute to do something other than music. I've recently done quite a lot of work, and have work lined up through to mid summer along with a soundtrack release.

I'm looking to upgrade some things for my setup, add a couple of hard drives for backup, upgrade RAM, new keyboard (typing), a bass, some monitors (currently use headphones and I can't do it like I used to because I've been working with music so much)

I've read that anything over £300 is classed as an asset and not an expense so how do companies go about dealing with that? I've read that some things like computers depreciate so you can only claim a certain % of the amount for the few years whereas I'd rather just put the full amount for tax year I've bought it and be done with it.

Also, how do you go about selling a business item that you've previously classed as an expense?

[The Byre]

Originally Posted by Amber

I've read that anything over £300 is classed as an asset and not an expense so how do companies go about dealing with that? I've read that some things like computers depreciate so you can only claim a certain % of the amount for the few years whereas I'd rather just put the full amount for tax year I've bought it and be done with it.

Also, how do you go about selling a business item that you've previously classed as an expense?

1. That don't sound right to me! I do not do the books at our place, but that would mean that £50,000 worth of advertising would be an active asset, whereas a £299 microphone would be an office incidental and the same as a box of pencils.

2. Computers are definitely an asset. We have an old G3 that I still use, we have a 48 tracks of Radar that are eleven years old and have been kept bang-up-to-date. We also have bought computers that would be far younger, but got thrown away after a couple or years. They all get written down at a set rate. I believe ours is eight years, but I honestly do not know off the top of my head.

3. If you sell an item that is on your books as an asset, then it is income (in-coming! Get it?). If you have a massive item that has long-since been written down by depreciation (e.g. a large mixing desk or a very valuable microphone) and you and your company are not one and the same thing (e.g. a limited company) then it is a good idea to transfer it away from the company by making a private purchase at nominal value. What you do with it after that, is your business.

4. Something tells me you need to speak to an accountant. That will not alleviate your need to do your books, however (unless you want to pay oodles of money!) but, assuming that you are a sole trader and not a limited company, the money you will save will be far, far more than the few hundred that it will cost you!

[jazzdog]

Originally Posted by Amber

I've read that anything over £300 is classed as an asset and not an expense so how do companies go about dealing with that? I've read that some things like computers depreciate so you can only claim a certain % of the amount for the few years whereas I'd rather just put the full amount for tax year I've bought it and be done with it.

Also, how do you go about selling a business item that you've previously classed as an expense?

Broadly speaking, equipment that could be seen as an asset wouldn't be included as a taxable expense - it would go under capital allowances. £300 is just a rough rule-of-thumb figure - I don't think you'll see an figure mentioned in HMRC guidelines, but if you buy a £200 hard drive they'd expect you to include that as an expense.

You should read the current HMRC notes on capital allowances, but these days they're actually much simpler and you can usually write down 100% of the cost of an item straight away in the year you buy it, so it doesn't work out any differently to if you'd included it as an expense.

If anything has a proportion of personal use, as well as business use, you need to account for that.

Not completely sure about selling things classed as expenses. It's not something I have to deal with very often.

With all these issues I'd always ring up HMRC to check - they'll have a number on the website. They've always been very helpful for me, but will probably need to transfer you to a specialist to talk about capital allowances.

[jazzdog]

Originally Posted by The Byre

1. That don't sound right to me! I do not do the books at our place, but that would mean that £50,000 worth of advertising would be an active asset, whereas a £299 microphone would be an office incidental and the same as a box of pencils.

Yes - this £300 rule-of-thumb is when we're talking about equipment, tools, machinery, etc.

Originally Posted by The Byre

2. Computers are definitely an asset. We have an old G3 that I still use, we have a 48 tracks of Radar that are eleven years old and have been kept bang-up-to-date. We also have bought computers that would be far younger, but got thrown away after a couple or years. They all get written down at a set rate. I believe ours is eight years, but I honestly do not know off the top of my head.

For the last few years there have been big changes to capital allowances and there now is something called an Annual Investment Allowance. Up to a certain level it means you can write down 100% of the cost of equipment straight away, rather than using a Writing Down Allowance over several years. I think it started as expenditure up to £50,000...was then raised to £100,000...and was reduced in the last budget to £25,000.

Originally Posted by The Byre

3. If you sell an item that is on your books as an asset, then it is income (in-coming! Get it?). If you have a massive item that has long-since been written down by depreciation (e.g. a large mixing desk or a very valuable microphone) and you and your company are not one and the same thing (e.g. a limited company) then it is a good idea to transfer it away from the company by making a private purchase at nominal value. What you do with it after that, is your business.

Another thing I asked the tax inspector about and he said if I've already written down 100% of the cost of the equipment as a capital allowance, then if I sell it I won't have to worry about balancing allowances (the way it used to work).

Originally Posted by The Byre

4. Something tells me you need to speak to an accountant. That will not alleviate your need to do your books, however (unless you want to pay oodles of money!) but, assuming that you are a sole trader and not a limited company, the money you will save will be far, far more than the few hundred that it will cost you!

Yes - certainly - or at the very least, get lots of advice from HMRC.

[The Byre]

Originally Posted by jazzdog

For the last few years there have been big changes to capital allowances and there now is something called an Annual Investment Allowance. Up to a certain level it means you can write down 100% of the cost of equipment straight away, rather than using a Writing Down Allowance over several years. I think it started as expenditure up to £50,000...was then raised to £100,000...and was reduced in the last budget to £25,000.

Right there is the best example of why the OP needs to go to a firm of good accountants (and not just some guy doing a homer)!!!

No normal human being can possibly keep up with all the ridiculous fiddling about that the UK laughingly calls tax laws! Even the tax authorities can and do make a mess of things, simply because the rules are so absurdly complicated. This is particularly true for sole traders, where for some reason, the law and rules seem to get changed on the hour, every hour!

BTW, everything I have written has to be taken, bearing in mind that our studio is part of a limited company and I do not do the taxes or books.

[Amber]

I will be doing my tax return through a music accountant from now on. I'm a sole trader. I buy everything with the same business account. All income goes in there, all expenses go out.

Thanks for the info guys. Have tried to call HMRC various times but I seem to be stuck on hold for someone for half an hour.