Rachel Hair’s 1st Money diary – Revisited

For those of you who missed the introduction to the series of Money Diaries for Musicians, here’s an opportunity to read the first one again, wirtten after Rachel had spent some time touring with her trio in Belgium.

Welcome to the first ‘episode’ of Rachel’s Diary. What follows below is Rachel’s account of a recent trip to Belgium with some tax questions that it raised for her. We have then answered these questions for Rachel but in a way that we hope will benefit all musicians who have an uncomfortable relationship with HMRC (otherwise known as The Revenue!). Find out more about Rachel and her music at www.rachelhair.com or http://tinyurl.com/6fzw5uu

I was over in Belgium last week with the Rachel Hair Trio playing a set as part of the “Gaelic Crossroads” concert in Lommel, near the Dutch Border. What a trip….we were so well looked after and the gig was almost a sell-out.
We received a good fee for the trip on top of all our expenses (flights, accommodation, transfers) being covered so financially, as well as musically, the trip was a great success.
As usual we, or rather I on behalf of the trio, got paid in Euros, having invoiced my agent who then in turn invoiced the promoter with his fee on top of ours (how much we pay our agent may be the subject of a future piece!)
Since I am the financial brains of the organisation (difficult to believe I know) it’s normally me who gets paid and then I pay the other pair, normally emailing them an official “receipt” (if that’s the right term) to confirm that I’ve paid them for the stated gigs. If work is done in the UK I normally pay them by BACS from my own account, but more often than not if we work outside the UK we get paid in cash, so I pay them cash.
Right now the euro is very strong against the pound so we really appreciate getting paid in Euros. The race is then on between the three of us to try and find the best buy-back exchange rate. Once I’ve exchanged the Euros I keep the bureau de change receipt stating what the exchange rate was so I can add my fee in pounds into my accounts.
When travelling we ate while at the airport on the return journey in Brussels, and I kept the receipt for this having paid in Euros. When putting it into my accounts I normally would take the final exchange rate that I got for changing my fee when back in the UK and work out what I spent in pounds, putting that amount into my account.
However on occasions I’ve used my credit card and then looked at my bank statement for what their exchange rate was and put that in, when paying my card.

So here are my questions from last week:

Is it okay to work with exchange rates at the time we get back or should I look for rates on a specific date, or historically?

Do I need to make a note in my accounts of exchange rates each time we change money, or is the receipt enough evidence?

Should I be putting a note of the Euros I got paid as well in notes to my accounts?

What happens if we are investigated and HMRC discover that we have been paid different amounts for the same gig because we all got different exchange rates when we changed money?

Moneysucks? spoke to Graham Faulkner, tax partner at Chartered Accountant Abercrombie Gemmell and asked him for his take on Rachel’s issues. We agreed, first of all, that Rachel has done a good job in the way she deals with the other members of her trio. Too often we hear of musicians who get paid for work and pass out cash to the others involved without any paperwork changing hands .This leads to confusion and can cause issues with HMRC since, if we take the situation Rachel described above, in the absence of receipts showing that Rachel has paid the other members of her band then HMRC could think that all of the money paid to Rachel by her agent was her income, and tax it accordingly.
Graham thinks that the most important thing for Rachel to do in her dealings with the revenue is to create a clear paper-trail for them to understand. “In Rachel’s circumstances, the key consideration will be to keep sufficient records to tie in the actual exchange rate when preparing her tax return. I would have thought that simply retaining the paperwork from the Bureau de Change would be sufficient. At this level, I would not overcomplicate matters by worrying about notes in your accounts regarding the rates.”
In terms of the exchange rate differing day to day, Graham reckons this is not really a problem as long as Rachel’s paperwork confirms the amount she received but says that help is available on this issue. “HM Revenue & Customs publish monthly lists of the official exchange rates for use in preparing tax returns, and these can be found at http://www.hmrc.gov.uk/exrate.”
Graham is not too worried about any variation in amounts paid to different members of Rachel’s trio. “Similarly, it is less important to marry up exchange rates between the band members, provided that the amounts are being returned to HMRC in accordance with the actual amounts received on exchanging the Euros on your return to the UK.”
So all in all it looks as though Rachel has grasped the basics of this issue and if she takes Graham’s advice on board her tax return should be easier to complete next year.
Graham does raise one other important issue that is relevant to musicians, and others, working abroad. “One consideration that should not be overlooked is the potential taxability of these earnings in the relevant European jurisdiction. Strictly, I would expect you to be liable to Belgian tax in relation to your activities there.”
This raises the spectre of the ‘double taxation agreement’ and the need to understand where tax is due to be paid when you work overseas. We’ll come back and look at this one in more detail next time!

The tax clock is loudly ticking

The end of January tax deadline is looming again and self-assessment taxpayers now only have a couple of weeks to return tax forms to HMRC – or face a £100 fine.

As well as filing a return by the end of this month, any tax due for tax year ended 5^th April 2011 needs to be paid along with the first half of this year’s potential tax bill. Failure to make payment of tax that is due by this date will result in interest being charged on the amount due.

Around nine million taxpayers submit a tax return every year and two thirds of these returns are now filed on-line. Many of us leave the filing of our return to the last minute and this caused around one million people to have to pay a fine last year.

If you are new to on-line returns then you need to register first of all and you can do this at www.hmrc.gov.uk. When you have registered you will receive an activation code through the post and this allows you to go on-line and file your return. Given the state of the postal service at the moment due to the weather time is now at a premium and if you have still to register you need to do it now!

If you still prefer the old fashioned method then HMRC need to have received your return by 31^st January.  You can take your return to a tax office up to that date if you don’t trust the postal service but in a neat little twist HMRC won’t issue you with a receipt to prove you delivered it on time if you hand deliver, leaving yourself open to the possibility of a fine.

Rachel’s tax questions answered – and how!

Elaine Guthrie, of Chartered Accountants Abercrombie Gemmell(www.agca.co.uk), has been looking at Rachel’s tax queries. Here are her suggestions:

In order for expenses to be offset against your income for tax deductibility, you have to look at the expenditure being incurred and whether it is incurred “wholly and exclusively” for the purposes of the business. So, the cost of a train ticket to get to and from a gig would be incurred by Rachel “wholly and exclusively” for the purposes of her business. Without the train ticket, Rachel would not be able to get to and from the gig and would therefore not receive any income.

Where it gets slightly more complicated is when there is a mixed element of usage. So, for example, telephone bills often have a business and private element to them. In these circumstances, we look at the element of business use and private use and apportion the costs based on these. So, for example, Rachel could apportion her telephone call based on the number of calls made/received by her or the number of minutes she spends on the phone for business/private use.

For a deduction for use of home as office, this is slightly more complicated. There are a number of ways to calculate the use of home as office deduction. HMRC have advised that they believe a deduction of £2 per week to be sufficient to cover additional costs associated with working from home. However, it is possible for Rachel to claim more than £2 per month provided she can justify this. Generally speaking, the most popular method of calculating the use of home as office is to consider the number of rooms Rachel’s house has. If Rachel had 5 rooms in her house and used 1 of these rooms for business purposes, then 20% of the costs would be available for her use of home as office calculation. Thereafter, Rachel should assess her business use of the room in question. If she used the room 25% of the time for business purposes, then she would be able to claim 5% of her total household bills against her business income (this represents 20% x 25%).

Care needs to be taken when claiming a deduction for use of home as office. For those individuals who own their houses, making a claim for 100% business use of one room of their property would render that room a business asset. As such, if they were to sell their house, the room would not qualify for Principal Private Residence Relief and as such may be subject to capital gains tax.

Turning to Rachel’s car, she is able to claim a deduction for the business use of her car in one of two ways:

Method 1: Rachel could claim 45p (40p pre-6 April 2011) per mile for each business mile travelled for the first 10,000 miles followed by 25p per mile thereafter.

Method 2: Rachel could bring her car into her business as a capital asset. This would allow capital allowances to be claimed on the value of the car together with the yearly running costs of the car for example road tax, MOT, repairs. However, care needs to be taken if Rachel has private use of the vehicle as only the business use element of the car would be an allowable deduction for tax purposes. Therefore, if Rachel used the car for business purposes 75% of the time, then she would only be able to claim 75% of the running costs of the car as a tax deduction.

Both of the above methods are worthwhile and Rachel should take care to ensure that she opts for the method that suits her best. It should be noted that Rachel cannot opt for different methods each year – she needs to choose one method to use consistently.

Rachel notes that she may purchase assets from time to time if they are required for her business. If these assets provide an enduring benefit to the firm, Rachel would need to claim capital allowances on them. Care needs to be taken when purchasing musical equipment. If the asset is likely to appreciate in value, it may be detrimental to claim capital allowances which would be clawed back on the disposal of the asset at a later date.

Rachel should include the total amount she receives from promoters in her income and include a deduction for her expenses at the same time.

If Rachel were to purchase a ball gown for an event, she may be able to claim a deduction for this. However it is necessary for Rachel to show that this purchase was for business purposes only. Therefore, Rachel should not wear the ball gown for any private purposes, but only for business purposes.

Rachel will be able to claim a tax deduction for any consumables used in her trade such as strings, reeds and so forth.

One little tip I would give to Rachel is this: keep twelve envelopes – one for each month of the year and pop your receipts into these throughout the year. It helps save a lot of time sorting them out at the end of the year!”

Me and My Money – Dr Hilary Jones

Dr Hilary Jones has been the resident medical expert on Daybreak since before it was Daybreak. Early-morning rises haven’t stopped him taking a sensible approach to his money. In the first of a two-part Me and My Money special he talks about his attitude to cash. next time he’ll talk about his knowledge or his consumer rights, and whether he thinks Doctors are paid too much.

What’s been your most expensive buy?

Other than houses, my most expensive buy would be a special edition BMW 20 years ago. Beautiful car but it must have cost the best part of £7,000 just to drive it out of the showroom and it was subsequently stolen from the street and broken up by thieves to make more BMWs. It’s the last time I ever bought a new car.

Did you learn about money as a youngster?

I learnt that money was very tight and hard to come by. My first job was a paper round paying me a few pence per week but I never threw money around after that.

Do you invest in the stock market?

Yes, but I get someone who knows what they’re doing to do it for me. I don’t take any huge risks. With 5 kids dependent on you, you can’t afford to.

Do you take risks with your money?

No. Every pound I’ve ever earned I’ve had to earn myself, so I would find it stressful to gamble with it.

Would you borrow to set up in business?

Yes, provided the interest rate was reasonable. I do believe you have to speculate to accumulate, but even then somehow I’ve always managed to avoid borrowing.

Are you comfortable banking and buying on-line?

I am now. It took me a while to get used to navigating the system, but since I can’t bear queueing or shopping, this works well for me.

Have you made any real mistakes?

Nothing major. I have some regrets about not following my gut feelings and investing in companies in the past that I’ve thought were likely to do very well, but that’s because I have probably been too cautious.

Are you a spender or a saver?

50/50. I like to have a little put aside for a rainy day or in case the proverbial fecal matter hits the fan, but I enjoy spending a little too.

Do you enjoy dealing with your money?

No. It’s just not something I’ve ever really been into. I have to struggle with keeping abreast of all the new developments in the medical world as it is.

What are your priorities in the next ten years?

To pay off the mortgage, get the kids through University and with a roof over their heads and to enjoy the fruits of many years’ hard work saving lives.

What’s your best and worst buy?

Best buy has got to be every house I have bought so far, and the worst buy either that silly but pretty BMW, or a couple of vintage cars I owned which I eventually lost money on.

Does having money make you happy?

It’s a question of amounts. I see so many unhappy very rich people and so many miserable very poor ones. I think what makes you happiest in life is love, and a good sense of humour. You can’t really buy that.

Cash, cheque or credit card?

Credit card every time. Unlike the Queen. Rarely carry much cash.

Cut spending or increase taxes?

Increase taxes. But only for the very rich. The threshold should be just above what I am earning. Obviously.

Rachel tries to Account for her music

Well well, it’s that time of year for me again… annual accounts time woohoo!

Now I know it’s advisable to keep a spreadsheet throughout the year for my accounts, but I must confess I’m in the habit, and well I don’t mind it, of just doing them all in a oner, usually over 3 days, every November.

I am careful though to keep a constant note of what I’ve earned somewhere. I have invoices or receipts for anything that I’m paid for in cash or cheque, either in hard copy form or on my laptop and email system. If I don’t have this (e.g. cd sales at gigs) I email myself a note of what cash I’ve made. This is very easy to do nowadays as I always have my iPhone on me.

For my university and council teaching (all of 4hours a week!) they send me pay slips so that takes care of that, and most of my agents send me out contracts. Using online digital banking is also making it easier than ever to keep tabs on how much you’ve earned from certain people every year, or how much you’ve paid out to people (like the other 2/3s of my trio) as you can easily download a year’s worth of statements and search through them using excels “find” facility.

I’m quite old school though when it comes to receipts for stationary, harp books etc. I have an actual shoebox that I put them all in to! The first thing I do when I’m going my accounts is to sort them into months. Tedious, but gotta be done!

I don’t actually do the working out of my tax return myself. I have a lovely accountant who does it for me, but I still have to prepare them for him. I use a spreadsheet that he made up for me, which has 2 main pages…. income and expenditure. The income page I list all the income (and date it) and then divide it into columns of what type of income. The headers for that i use are quite simply: gigs, workshops, media work, cd sales and royalties.

The second expenditure is a little bit more detailed. I list the type of expenditure then have columns for this again with amount spent on each expenditure. These currently are: Mileage (there’s a calculation on the spreadsheet that means I type in the amount of miles and it works out how much I get), harp costs, asset purchases, stationary, computer running costs, car running costs (everything including insurance and mot), mobile phone, rent (as I work from home a lot), recording costs, travel (to gigs that don’t use mu car), subs (MU insurance, instrument insurance), accommodation, promotions, sheet music and food (for gigs).

Once all the details are entered into each of these income and expenditure pages, I have another page which gives a summary of all the income and expenditure, and the net profit made.

What I’d like to know is with regards to my expenditure how much of that can I offset against my tax? I know there must be certain percentages, and I could ask my accountant, but every year by the time I’ve done my spreadsheet I don’t want to know anything else other than how big a bill I’ll have in January!

Also, just to check again, and I know I had an answer to this previously, but i think it’s good to revisit it. If I get paid, say £200 for a gig and the promoter also gives me £100 to pay me back for the £100 flight I bought myself to get to the gig, should I a) put the whole fee in as £300, and then put the £100 flight in myself under my expenditure, or should I just put in the gig fee of £200 and ignore the £100 flight (having had a receipt of it myself, and forwarded it to the promoter too).

Don’t let the taxman spoil your Christmas

If you’re a student and about to start work for the Christmas holidays – not that you won’t already have been working hard all year at whatever course you’re doing – then remember that if you organise yourself properly you may not have to pay tax on your valuable earnings over the festive period.

Each of us has a personal allowance of £7,475 this tax year (from April 6th 2011 to April 5th 2012) and this is the amount of money that we are able to earn before starting to pay tax. So if you are only working for a few weeks over the holidays then it may be possible to have your employer pay you without deducting any tax from your pay.

To enable your employer to pay you without deducting tax then you will need to complete HMRC Form P38(S). It can be found at www.hmrc.gov.uk/forms/ps8s.pdf

If you’ve already started work and you have already had some tax deducted then you can still claim it back afterwards by completing a Form P50, and again you can download this form at www.hmrc.gov.uk/pdfs/p50.pdf

If you worked over the summer and paid tax but earned less than £6475 then you can still use this form to reclaim the tax you have already paid, and perhaps use the money to help fund your Christmas spending!

Rachel Hair is struggling with her tax codes!

Rachel is going to ask us some questions about her tax return next week but before she can start to do that she’s confused about all of the different Tax Codes she seems to receive. So here are her questions, and we’ll answer them in a few days. Then next week we’ll get to grips with the accounts themselves! If you want to ad any questions to add to the list then please do so now before we let the Accountants loose on them.

“Every year I get several letters from the Inland Revenue stating ‘your tax code for this year is ……’. The letters then go on to say what job they’re connected to (As well as being self employed I teach a couple of hours each week for East Dunbartonshire Council and for the University of Strathclyde).

I have to say I’m very bad as I just ignore these letters and carry on as normal, though looking back on them I think they all ask me to check that the information they have is correct. It just confuses me as I get several a year…. is it therefore possible to have more than one tax code? If not can I choose which I have? And each time I receive a new letter does it cancel the previous tax code out from the previous letter?

Can you explain exactly what tax codes are??

I’m just very confused and I know I should know what they’re all about!

Also I get a letter from one job that I left years back that I never received a p45 for. The letter tells me every year what my tax code is (every letter I get has a different tax code) for that job even though i no longer work for them…. should I do something about this? I know really I should call up for my p45……..”

We asked Elaine Guthrie of Chartered Accountants Abercrombie Gemmell (www.agca.co.uk) to have a look at Rachel’s queries and come up with some answers and here we go. I think elaine has managed to avoid too mucgh jargon but if she has said anything that you don’t understand then please leave your questions below.

“Employment income suffers tax at source through the Pay As You Earn Scheme. In order to ensure that the correct amount of tax is deducted at source, H M Revenue & Customs issue tax codes each year for each employment someone has. As Rachel has more than one employment, this is why she is receiving several different tax codes.

Rachel’s tax code could be made up of several different items, including her tax allowances, allowable tax deductions, tax reliefs and taxable benefits/income for the year in question. These items are used to calculate Rachel’s tax code, which allows her employers to know how much tax to deduct from her salary in each pay period.

It is worth noting that Rachel’s tax codes are estimates based on her tax position for the prior year. Therefore, once again it is worth Rachel checking her codes to make sure that they reflect her current situation.

As Rachel has more than one employment, it is likely that her tax codes will need to be reviewed to check that the correct codes are being applied to each source of employment. Unfortunately, HMRC’s systems do not automatically tie up all sources of employment income to an individual. This can result in the issue of incorrect tax codes which can lead to under or overpayments of tax.

Rachel notes that she receives several tax codes each year for the same employment. The latest tax code received for each of her employments is the one that will be applied to Rachel’s salary going forward. Any previous tax codes issued for the same employment will no longer be used. As previously mentioned, tax codes are estimated and can change during the year when HMRC become aware of a change in Rachel’s circumstances. This will be why Rachel is receiving several tax codes for the same employment source.

Rachel notes that she is still receiving tax codes for a company that she no longer works for. Rachel should contact HMRC direct and advise them of this which will allow them to close off the employment source from her records and stop all unnecessary correspondence.

It is important to note that every employed individual should be checking their tax codes to ensure that they are correct. This will save any nasty letter popping up in a couple of years’ time telling you that you have underpaid tax for a previous year.”

Based on Rachel’s current position, it is likely that she will be entitled to a full personal allowance of £7,475. As such, the first £7,475 of income received by Rachel is tax free. In order to ensure that Rachel receives her full personal allowance, this will be popped into her tax code.

Therefore, the most basic tax code is 747L, which would ensure that the first £7,475 of Rachel’s salary is received tax-free with the remainder of her salary taxed at her marginal rate of tax. If Rachel had income or benefits in her tax code, these would be offset against her personal allowance thereby reducing her tax free allowance. This would result in more tax being deducted at source. Therefore, the lower the tax code, the more tax is paid at source.

In most cases, a letter follows the numbers in a tax code. This letter identifies the type of individual that the tax code applies to, so for example, the letter L refers to someone who has a basic personal allowance of £7,475. Other letters refer to other types of allowances, including the age related allowance.

The only time that a letter precedes the number is when a K code is issued. A K code is issued when someone’s income or benefits exceeded their personal allowance. This results in an amount being added to the person’s salary before tax is deducted, which increases their overall tax liability.

It is worth noting that there are three other types of tax code : NT, BR an D0. These codes deduct tax at 0%, 20% and 40% respectively from someone’s salary.

Finally, the maximum amount of tax that can be deducted by HMRC via a tax code is 50% of the remuneration paid.”

Paying Regular Bills From Irregular Income – Some Thoughts.

In Rachel’s last diary blog she talked of the difficulties in budgeting to pay her bills from an income that comes and goes. We asked Nicola Jackson, Chair of the Glasgow Branch of the Institute of Financial Planning, and a Chartered Financial Planner, to comment on Rachel’s issues.

I think that Rachel has made an excellent start when it comes to thinking about her budgeting and is most definitely heading in the right direction. Trying to cope with regular payments out when payments in are irregular is not easy!

If I was advising Rachel I would suggest she breaks her main expenditure down into two categories as follows:

Fixed and Personal Expenditure

Those payments which come out of her bank account each month and which have to be paid in order for Rachel to live her life. She has rightly started to do this by looking at her mortgage, bills, petrol etc. but I would also ensure she has added food and basic socialising into this budget. If she doesn’t take this into account then she is always going to be behind and susceptible to borrowing or overspending so I think that this Fixed Expenditure Budget list needs careful and honest consideration. She needs to ensure that whatever she has left over in the months where income is higher are not squandered and are available to plug the gaps for the months when income has reduced. This involves accurate budgeting as described in the article
here

Music Development

This would be any costs associated with growing her business. She has rightly started to forecast this and this is her next budget in order of priority. She needs to spend this money to speculate to increase her income but I would also suggest she looks into ways in which she could subsidise these costs, perhaps with grants or joint ventures. I appreciate that this might compromise her output so if she doesn’t want to do this then she needs to work out how much teaching, for example, she needs to do to cover her Fixed Expenditure Budget and then her Music Development Budget.

Of course this then raises the issue of time and Rachel needs to leave herself enough ‘time’ to do the development work she needs whilst earning the money from teaching and gigging to provide for her two main priority budgets.

It is important that Rachel sets herself time related goals. She needs to have achieved ‘x’ by a certain point in time. This will then help her focus on budgeting to a time frame. This will in turn enable her to signpost her own development and progress in writing her new album and ensuring that funds she has made allowances for in her budget are not exhausted by her project drifting. I would have a visible wall planner where she works and plot her signposts onto this so that she can always keep track of where she is against schedule and budget.

This should help Rachel focus on those important items she wants to achieve.

Paying Regular Bills From an Irregular Income

Our travelling musician Rachel Hair has sent us her latest post from a ferry on the Irish Sea while on her way to another far-flung gig. In this one she tells us of the difficulty budgeting to pay regular bills, never mind funding the cost or producing a new album, when her income is so irregular.

Let us know what you think Rachel should do, or tell us if you have similar issues, before we call in our experts to offer their advice!

“As a self-employed musician and teacher every day, week, month is different. Some days I can have no work, others I can be away on tour, or have back to back teaching and rehearsals.

A result of this is that my monthly income fluctuates all the time. There’s usually one month of the year when work and earnings are low. This year it happened to be March. I’d had a tour cancelled, so as a result had little performing work and just had to rely on my teaching to get me by. I’m quite lucky in that my week to week private tuition can cover all my outgoings (mortgage, bills, petrol etc) but it doesn’t leave much for anything else else and at times pupils can cancel lessons, which is frustrating to my bank account!

In order to budget for things I have to look at what my bookings are for the months in advance. Every now and then I have a crisis of confidence and sit down with the diary and calculator to work out how much I’m going to earn in the following months. Right now I’m saving for my trio to record a new album. It’s a very expensive business as I’m a self-releasing artist so have to pay everything from the recording, mixing and mastering to the physical production of the cds, marketing and mail costs to distributers.

At the end of spring I sat down and worked out how much I could earn before November to see if I would be able to pay for the album. This involved calculating all my direct debits that go out of my bank account and then working out how much my gigs and teaching would bring in over the next few months. It’s worked out ok, though I am having to be careful about my outgoings…no summer Caribbean holidays this year!

I now know (I know I should have worked out earlier) exactly what my minimum outgoings are per month which is making life a lot easier for saving for the album.

Managing money can be a challenge, but it’s something that just has to be done. I’m finding now that I have to sit down every few months to check that I have enough work coming in. If I see there’s a couple of weeks with not many gigs, I know I have to be careful that month, and make sure I have enough money in my account to cover my outgoings.”

Rachel Hair’s latest money queries

Here is Rachel’s new money diary and like last time we’re going to ask you to make any comments and add any extra relevant questions before we get our panel of experts to deal with Rachel’s queries. As usual you can leave a comment at the bottom of this page or drop us an email at info@moneysucks.net

“I’m sitting in the car for queued to get onto the Cal Mac ferry to get back to the mainland. I was playing last night at the stunning Mount Stuart on the Isle of Bute for (and I kid you not) Russian billionaires who were cruising around the Scottish coast on what until 2 years ago was the world’s most expensive super yacht. But of course they had to take a 24 hour break from the holiday to fly off in their private jet down to London to see the Champions League final. How the other half live eh?

I had a rehearsal with Jenn Butterworth on Friday (1/3 of my trio) and during our coffee break we started to chat about car use, and the cost of petrol. We both drive near identical cars and Jenn was saying she was considering changing to a diesel car as she reckons our cars aren’t the most economical with regards to miles to the gallon. My plan with mine has always to run it to the ground….I do such an insane amount of miles that within a year my car depreciates by a huge amount and I reckon that I wouldn’t be able to easily sell it and upgrade without saving a heck of a lot of money first!

Our discussion went on to talk about how we deal with travel expenses as we were both going to be doing teaching the next day for the Edinburgh feis. They pay us a fee and expenses based on an amount per mile. This is the same for some other organisations I do performances for. Some of my own corporate/wedding work that I contract to I also add on travel expenses to my fee. So my questions this week are:

• What is the best way in my accounts to write this up/claim for it?

• Let’s say I am paid £200 for a performance and they also give me travel expenses of £30 (worked out from their rate of 100miles at 30p per mile). Should I

a) Write in my account that the fee was £230 (it was on the same cheque) and then claim mileage at the HMRC amount of 40p per mile?
b) Write it in my account fee was £200 and then disregard the £30 travel added completely and then not claim for mileage?

• In the past I have always done option a) but have always wondered if it was the best? Certainly with my own work I have added on travel expenses, which are detailed in my contract to clients, and then put the fee which included the expenses in my accounts and then claimed mileage at HMRC rate.

• On this trip that I’m on just now I’m planning on putting my fee (which I worked out with ferry costs in mind) in my accounts, and then claiming HMRC mileage and the ferry costs. I’m assuming that’s the way to do it!

• I’ve had situations with gigs abroad where we’ve had to buy our own flights but then the promoter added the cost of the flights that we paid to our fees so that we didn’t lose out. Again, is it best to

a) Put our fee as the actual amount, including flight costs, that we were paid in the end and then to claim flight costs from HMRC?
b) Disregard the fact that we were paid a bit extra to cover flights and just put in the gig fee alone into our accounts? I’m always wary about this as there could be a discrepancy in payments from promoters verses what was in our accounts especially if we were paid by BACS.

• And one other thing…. I had a moan a while ago because it seems that the price of petrol has increased by such a lot in the past few years but that HMRC had not increased their mileage rate from 40p. Jenn told me she had heard they’d increased it to 45p now….is that true???”

This month we have asked Colin Abercrombie, of Abercrombie Gemmell Chartered Accountants (www.agca.co.uk) to answer Rachels queries but thanks are also due to Accountants Andy Logan at Robb Ferguson and Frank Reid, of Frank Reid Accountants, for their input below as well.

Colin comments:

“As Andy states, Rachel should always include the money received in respect of her fee plus expenses in her accounts; i.e. the full £230. However, there are two alternatives to consider when making a deduction for her travel expenses:

Method 1 : Rachel could claim 45p (40p pre-6 April 2011) per mile for each business mile travelled for the first 10,000 miles followed by 25p per mile thereafter.

Method 2 : Rachel could bring her car into her business as a capital asset. This would allow capital allowances to be claimed on the value of the car together with the yearly running costs of the car; e.g. road tax, MOT, repairs, insurance and of course the cost of petrol. However, care needs to be taken if Rachel has private use of the vehicle as only the business use element of the car would be an allowable deduction for tax purposes. Therefore, if Rachel used the car for business purposes 75% of the time, then she would only be able to claim 75% of the running costs of the car as a tax deduction.

Both of the above methods are worthwhile and Rachel should take care to ensure that she opts for the method that suits her best. It should be noted that Rachel cannot opt for different methods each year – she needs to choose one method to use consistently.

As mentioned above, Rachel can claim 45p per mile for each business miles travelled from 6 April 2011 onwards.

As always, Rachel should maintain full business records to support any claim she makes in her accounts.”

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