Tax, wholly and exclusively
A FREELANCE took his tax return down to the local HM Revenue and Customs (HMRC) office every year. They calculated what he owed and he sent a cheque. Until the time they fined him £100 for underpayment. "But you told me that's what I owed!" he cried. "But you're responsible for getting it right!" they guffawed.
Eric Longley makes a point
That's what Eric Longley, accountant to the stars and several members of LFB, told May's branch meeting - on the Monday of the Brown-Clegg coalition flirtation, which meant he was guessing about the new Government's upcoming Budget.
But, he said, the Lib Dems' proposal to raise the lower limit of taxable income from £6485 to £10,000 - embraced by Cameron-Clegg the following day - would leave every taxpayer with an extra £1400 per year (taking NI contributions into account).
However, he suggested that, if VAT is increased, voluntary registration would become a more attractive proposition for freelances (it's compulsory over £70,000 a year turnover) because it would enable us to claw back more money.
Another useful gambit for recession-beleaguered freelances, said Eric, could be to check their entitlement to Working Person's Tax Credit: see http://taxcredits.hmrc.gov.uk
With most members asking about claimable expenses, he cautioned against "waving red flags" at HMRC: "Tell them your net income after expenses is £3000 and they will wonder how you manage to live and start asking questions".
The basic rule is to claim against tax only costs "wholly and exclusively incurred in the performance of the trade or profession". Fortunately, though, it's not as simple as that. A proportion of a particular expense might arise "wholly" from your business. For instance, if working at home you can claim a "reasonable" percentage of heat and light bills. A third, say, might be acceptable, providing it reflects the business usage of the property. Eric cautioned against claiming the costs of a mortgage as that might compromise the capital gains exemption on the sale of your home.
"The same considerations apply in all areas: travel from your office/home on business is allowable but phone calls to your old mum are not business expenditure. NUJ subs make the cut OK (hey, that's HMRC offering a 20 per cent discount on union membership! Shhhh...).
By way of less mundane illustration, Eric said he'd once successfully claimed for dental work on behalf of a singer whose teeth had started whistling, and he'd shortly be going in to bat for an actress who'd had a boob job wholly and exclusively to get more work.
Concluding on a few random queries, he said that Arts Council grants were taxable "income from work" like any other fee, that keeping receipts (for six years) is a fine idea although in practice HMRC wouldn't investigate you for an undocumented sarnie or book of stamps - and freelances don't need to have accountants... if they "know the factors involved".
For more info on these issues see the Freelance Fees guide at www.londonfreelance.org/feesguide. Contact Eric Longley by sending email to firstname.lastname@example.org