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!

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!”

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).

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.”

Rachel’s Money Questions Answered – In Style!

Well we promised you some answers to Rachel’s money chasing woes and we’ve certainly got lots of them here. Martin Stepek, Chief Executive of the Scottish Family Business Association, kicks off with some great down-to-earth advice for anyone in business – not just musicians.

And if you are still struggling after trying all of Martin’s varied and practical tips then Paula Skinner, Partner at Law Firm Harper MacLeod, explains how you can seek redress through the courts.

All in all some fantastic advice that should help anyone struggling to get paid – without upsetting those you are chasing for payment too much (well as long as you are successful using Martin’s ideas and don’t end up in Court!).

It’s a longer piece than we would normally have on the site but it’s really packed full of useful information so please take the time to read all the way through!

Enjoy, and let us know if this was useful for you.

Martin starts us off:

“Chasing unpaid invoices is one of life’s most annoying and unpleasant tasks for most of us. So my first piece of advice is learn not to get frustrated by it. As my mother once told me when I complained about the pouring rain when I was going out to play football, “If you live in Scotland you need to learn to love the rain.” Accept it as part of your life.

That leads to the next thing. If it is part of your life it deserves a place and a space. Good personal and time management are some of life’s hidden joys. They save you getting surprised or upset and it feels like they buy you time and energy. So diarise – as if it was a concert – the dates you will check on your invoices to see if they have been paid or not, and stick to it as if it was a real concert date. If money should have been in your bank account on Monday 15th then the date to query why it is not in your bank account is Tuesday 16th.

As one of the people who wrote comments on the Moneysucks? site suggested, if you can get someone else to do it for you that’s great. But make sure it’s someone who cares about you – or your money! – as much as you do, otherwise you will probably be more effective doing it yourself. I am a great believer in delegation but the key to delegation is to give the task to the right person in the first place! Often it is a lot easier for someone else to chase as they are not directly involved in the relationship between musician and venue / festival / agent.

If the problem largely occurs with agents, and the agent doesn’t change his or her ways, pass them by phone or email – or if necessary by letter. Explain the situation to the organisation itself – if you can’t find the name of the actual person write to or ask for the Head of Finance – and say that in your eyes as a performer the agent’s failure to pay on time reflects badly on the people who employ them; in other words that their reputation is being harmed by their agent. Writing a letter is a pain in the backside in these days of emails, texts and instant messaging, but they are all the more real and powerful because of this. And a letter of criticism is always dealt with whereas emails can be ignored. But a phone call is best of all if you can get through.

If they don’t get round to paying you on time, ask yourself how much this gig or venue or organisation matters in the big scheme of your life. If the answer is “not that much” write to them and tell them that you are no longer prepared to work with them because they are being dishonest in their dealings with artists. Consider adding that you will share your story with fellow artists on Facebook and other groups. Don’t say or write this is an angry or negative tone, just say it like it is, calmly and matter-of-fact. You might think though that this could end up being harmful to your future prospects so think carefully about it. I have another, less personal suggestion on this theme below.

For unpaid invoices on which you didn’t have your payment terms, phone or write to them explaining your omission, tell them what your terms actually are, and ask that they now pay by return the overdue amounts.

In reality there is no such thing as a standard period for payment. 30 days is common, so are 28, 21, 14 and 7 days. This is actually a matter of negotiation between two parties. If you have put 28 or 30 days as standard then the other party will just accept this if they are happy with it. If you say payment must be on the day of the concert you don’t know if they will accept that. Given that many people you do work for pay you on the day, try to make that your standard, and state that this is the norm for the work you do. Then deal with any response. I’d go to 7 calendar (not working) days as my first response if the organisation says that payment on the date of the concert is not acceptable to them. If they say that’s too short a time, try to stick with it, saying that you are a poor wee struggling artist and they are a major organisation, that you need the money in your bank more than they need it in yours. Keep the conversation light and humorous if you can. Remember that unless it is the Carnegie Hall in New York or the Maracana Stadium in Brazil you can always say “these are my terms and if you don’t like it you don’t have to have me appear.” You have to be the judge of what is acceptable; just remember, the more they push you the more they will continue to push you. The more you stand your ground and push them the more likely you’ll get what you want next time. By the way my father once negotiated with Phillips the Dutch electronics company to buy £1million worth of televisions from them in 1970 when colour tv was just becoming affordable, and he asked for and got three years to pay! Remember this when you are famous and planning a world tour of football stadiums – ask for 50% up front a year in advance!

But be generous-minded if the people who owe you are struggling. Even massive companies fail for want of cash so don’t base payment or failure to pay on the size or reputation of the organisation. If someone hasn’t paid you promptly, you are entitled to ask them if they have a cash issue that is causing them a problem. In 99% of cases they won’t have a problem, and might be embarrassed enough by your question to cough up quickly! But they just might have an issue so do ask.

At my family business Stepek, when the miners’ strike started in 1984, our directors met to discuss the ramification for those on strike, hundreds if not thousands of whom were very long-standing customers of our business. They bought televisions or washing machines etc from us, paying week by week on credit, or else rented their tv from us. If we received a letter or phone call explaining that the customer or their spouse was on strike and money was tight, we had a policy of simply saying “pay us what you can, don’t worry about it, we won’t take any action against you, and we’ll sort it out together in the long run.” The strike lasted a lot longer that any of us could imagine but we could withstand not having the money coming in more than the miners’ families; and they almost all paid everything eventually. We charged no extra interest. So be decent to people if they are decent to you.

That said, you must deal with deliberate withholding of your money effectively. We used to have three letters, sent a week apart. Imaginatively we called these A, B, and C, letters. The first simply stated that an amount was now overdue; to ignore the letter if payment had been made in the interim period, otherwise we would be pleased if the customer would pay within the next few days. The second letter reminded the customer that they were overdue on their payment, that continued non-payment wasn’t good for either of us, and that we needed to see payment made promptly. The third letter said the amount was still unpaid and that the next letter would come from a lawyer and court proceedings would be started if payment wasn’t made on receipt of the letter.

You could do worse than draft an email or phone call script based on these steps, maybe substituting the legal threat with a publicity threat. (Frankly if people don’t pay you, do you want to work for them again?) Perhaps the musicians’ union would set up a part of their website, detailing who doesn’t pay and who consistently pays late; a threat to add more details to that kind of list would soon make most organisations pay. Of course you’d have to show proof that this is the case but worth exploring.

Sometimes you won’t get paid. Life is like that. I’m still due quite an amount of money from a friend from university days. I lent him the money in 1979. Somehow I think I won’t get it now. Don’t dwell on these things. But do make sure other musicians know so they don’t have to be ripped off like you were.

Hope this helps a bit!”

If none of the above helps then time to speak to Paula:

“Before starting more formal debt recovery proceedings, it is worth assessing the situation and whether recovery is likely. For example where a customer is in financial difficulty, it may be advisable to simply write off the debt rather than incur costs of court action.

When services have been provided you should ensure customers are invoiced promptly. It is advisable to provide a clear period for payment of all invoices in your terms. You may also want to provide for interest on late payments. As there will be a contract between you and the customer, you can state any period for payment. You may word it as “Payment should be made within 28 days from the date of invoice”.

If there is no date for payment provided, you should allow the customer a reasonable period for payment – 28 days is fair in most circumstances. Once this period is up, you could try calling the customer to prompt payment.

If payment is still not forthcoming, you should send a letter advising the payment is overdue. This should offer the customer between 7 and 14 days to make payment, failing which legal proceedings may be commenced. It is worthwhile highlighting if legal proceedings are necessary, interest and expenses will be sought in addition to the outstanding sum.

If payment remains outstanding, you may then wish to commence legal proceedings. You are not required to and instead may wish try to reach a payment arrangement with the customer. If you decide to proceed, the amount of the outstanding sum will determine the type of court action. For sums below £5000 in England and £3000 in Scotland recovery can be done as a small claims action and you can deal with the proceedings yourself, to save costs. Small claims information can be found at http://www.scotcourts.gov.uk/sheriff/small_claims/index.asp for Scottish claims and https://www.moneyclaim.gov.uk/web/mcol/welcome for other parts of the UK.

Court action should be seen as a last resort as the costs involved in court action can be high and will vary depending on the type of action, the complexity of the case and whether the customer disputes the case. Before raising an action, you should also keep in mind that court proceedings can often take longer than expected to conclude.

If you have any questions or concerns regarding an outstanding sum you should speak to a solicitor for advice.”

Rachel’s Money Chasing Diary.

 

A quiet month gave Rachel the opportunity to try to collect some money owed.  We’ll let her take up the story from here:

“Last month seemed for me to be quite a quiet month for professional gigs and I mainly spent my time playing corporate events and teaching my private students.

Unfortunately I had to spend a good amount of time emailing and calling people to chase up unpaid invoices I’d sent. Some of these were unpaid for almost 2 months after I’d done the work. Generally with professional concerts we get paid on the night. With corporate and wedding work that I do myself I also get paid on the day.

With some events though (like ones done through agents) I have to invoice and then wait to get paid. Some of these organisations have a standard “pay day” at the start/end of the month so I always know when to expect payment.

For 3 gigs I did in January I had to do a lot of chasing of my invoices. I’ve now noticed that I didn’t put any terms on my invoices. I remember I used to have them but found they were ignored by agents who had a standard pay day, so I took them off. When I did have them I had a standard 28 days. I really think I should have put them on the invoices that in retrospect I had to chase up.

What is a sensible amount of ‘time to pay’ to put on an invoice? Obviously I’d like to be paid as soon as possible, but I don’t want to come across too pushy. Would 7 days be a bit too much? 14 days perhaps be a sensible amount? And are those termed as actual days or working days?

What happens though if I am still not paid after the term has lapsed? There are quite a lot of times throughout the year when I seem to spend my time chasing invoices and am constantly told we’re trying to process it, or someone else is dealing with it. How strict should I be about the terms? I feel it’s quite hard to be firm about things as I don’t want to annoy the folk I’m asking to be paid as they are usually people who are likely to employ me again for work in the future. And what should I do if the terms lapse and I still don’t get anything?

This really caused me a lot of stress last month as it was work that I’ve previously been paid for within a few days. One of the cases was due to a change of management and unexpected changes to payment processes…they were incredibly apologetic which was good. However with the other 2 cases it proved for a rather stressful month of money management!”

Moneysucks would like to hear from you if you have had similar issues to Rachel recently. How do you deal with late payers? Should you be gentle and polite or just send threatening letters and kep the lawyers on a none-too-long leash? We’ll then pass all of your comments to Business guru Martin Stepek, Chief Executive of the Scottish Family Business Association, for his views on dealing with recalcitrant debtors. Wwe’ll also give yousome legal tips on when you should think about legal action if the debt remains unpaid, and how to go about taking that action.

Rachel’s Money Diary Part 2 – More Tax Stuff!

This is the second ’episode’ of Rachel’s Diary, and comes after a lot of questioning between musicians over coffee and beers since her first diary appeared a few weeks ago. There seems to be a lot of confusion over how to deal with overseas income that is taxed in the country in which it is received, and a concern that the same fees are then taxed again in the UK. Hopefully we go some way to answering these questions here but if you have any other questions about any of this, or any issues that you would like to see covered in Moneysucks? For Musicians then please drop us a line here

We know that these answers won’t cover every single situation but we have answered them for Rachel 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

 

Rachel’s Questions

Well I guess this diary is a result of some questions and conversations that have arisen from the writing of my first diary entry a couple of weeks ago. Last time I talked about the joys of working abroad and getting paid in a different currency and how to deal with this so that it looks in order in my accounts for the tax man. My colleagues and I have been talking about what happens if you pay tax to another country when working abroad.

My trio and I are in the middle of finalising the details for a tour that we’re doing in Norway this September. The tour is a mixture of public and school concerts and is being funded and organised by a Norwegian Government funded organisation over there. As a result of this our promoter has being talking to us a lot about the tax implications of the tour. 

With the majority of the gigs we’ve done in Europe we’ve been paid cash in hand and I’ve put them through my books as usual, paying tax as normal to the UK Government but with the Norwegian tour we’ve been told we will have to pay tax to the Norwegian Government and therefore as a result our promoter is taking this into account and raising our fee so we still come home with a payment. What therefore do we tell the UK taxman about this tour when we write it in our books?

If we include it in our accounts will we be taxed again? If so, can we claim back the tax we paid to the Norwegian authorities as we would then have been taxed twice? 

Norway in particular isn’t an EU member so is this therefore a situation unique to this country? Does every country have different rules? I have played in countries outside of the EU but the tax thing has never been mentioned so I’ve just put through the gig fees in my books as normal and paid UK tax on them.

I believe that a couple of times when playing in EU countries I have filled in/signed forms (I believe in France and Germany) to do with the tax. I don’t have them to hand immediately (they’re somewhere in my big box of old accounts under my bed!) but could these forms have been somewhere along the lines of tax exclusion forms saying I don’t have to pay tax in that country but will do so in my own country?

 So I guess some questions from this are as follows (apart from the ones I have already asked!):

If we are taxed in a country abroad do we put it through our own books?

If not, how do we inform our tax man that we have worked but already paid tax?

Can we claim the tax back from said country easily? If so, do we lose any money through admin fees etc. by doing this?

Are there different rules/regulations/procedures for a) different countries in the EU or do they all work the same b) different countries throughout the world?

 

 

 

Moneysucks Answers

 

Gigging overseas involves many issues, only some of which will involve taxation, and many of which will appear in future issues of Rachel’s diary I am sure!!  As last time we asked Graham Faulkner of Chartered Accountants Abercrombie Gemmell for his take on Rachel’s questions.  His opening shot was to tell us that in general terms “a UK resident and domiciled individual is potentially liable to pay tax on worldwide income.  This includes profits from trading in other jurisdictions. If these profits have suffered overseas tax, relief will normally be available for an individual under what is known as a Double Taxation Treaty.”

So there you go! The short answer, without getting caught up in what is ‘a UK resident and domiciled individual’, is that you’ll have to pay tax on the money you earn, wherever you earn it (and, as we discovered last time, whenever you earn it!), but you shouldn’t have to pay tax on it twice!

Graham went on to explain that statement in ‘accountancy speak’.  “Double Taxation Treaties are conventions between two countries that aim to eliminate the double taxation of income or gains arising in one territory and paid to residents of another territory. They work by dividing the tax rights each country claims by its domestic laws over the same income and gains.”

In other words Governments have spoken to each other round the world – and not just in the EU to answer Rachel’s question about the difference between EU and non-eu earnings, and agreed that  their citizens shouldn’t be taxed any more often than is absolutely necessary, as Graham went on to explain. “Over 2,500 Double Taxation Conventions exist world-wide. The UK has one of the largest treaty networks with over 100 currently in force.  There is a list of current UK treaties in force on the HMRC website at www.hmrc.gov.uk.  The underlying principles surrounding double taxation apply irrespective of whether the foreign country is an EU member or not.”

What that means for you is that you may need to disclose this income in a different section of your tax return dealing with ‘Foreign Income’ rather than UK income, as Graham explains. “From a practical perspective, the income earned overseas will require to be declared on your UK tax return as foreign income.  On the return you will be able to claim relief for the overseas tax already paid.  One important point to note there, however, is that the relief will be restricted to the level of tax paid in the UK on an equivalent amount.  Accordingly, where the overseas country’s tax rate is greater than the rate of tax you pay in the UK, there could be an element of “double taxation” which cannot be recovered through your UK tax return.  Generally the tax treaties are such that your combined tax bill should be no more than the amount you would have to pay in the country where the higher tax is charged.”

There are countries where no double tax treaties are in place and if you earn money that is taxed over there then you may need to act before you come home from whatever tour you are on. “If there is no double tax treaty between the UK and the foreign country, a claim for “unilateral relief” should be made.  This involves claiming relief on the lower of the foreign tax suffered or the UK tax due on that income but only applies in cases where there is no treaty in force.  In order to claim the Double Tax credit you must get a certificate of tax deducted from the overseas authorities,” says Graham.