UK Tax Guide For Artists:
An Executive Summary
This is an introductory guide for Artists, linking in to
our full UK Fact-File. If you'd rather dive right in to the
Fact-File, you can use the navigation on the right of this
page, or start from the UK home page.
Business Formation: Many artistic creators
operate very successfully as individuals but they need to
register as self-employed with the
Inland Revenue. You don't need anyone's permission to
start making or selling art-works, and you won't have to register
your business as such unless you form
a limited company, or you are Henry Moore and need a fork-lift
to move your scuptures around, which may require a
special license. Banksie may have had planning issues,
perhaps. Limited companies do have to be registered
of course, and have to report
annually, although for a small company the requirements
are not onerous. And remembering that the only two certainties
in life are death and taxes, inevitably you'll have to make
annual tax
returns, whether you're a limited company or not. If you're
really in a small way of business, you won't have to bother
with VAT,
which applies to many types of artwork in the UK. Of course
if you take on staff, life becomes more complicated! Businesses
of any size will probably gain from incorporation for a variety
of reasons.
Domestic Taxation: The big issue is whether
to be taxed as an individual
or as a company.
With individual
taxes going up to 50%, the corporation
tax rate of 30% looks attractive. Needless to say, it's
more complicated than that, especially if you are a director
of your company. The special circumstances of an artist may
also have a bearing on the choice to be made; long-term streams
of royalty
income, if you are successful, may dictate the use of
a company. Husbands
and wives can play some interesting variations, and get
the best of both worlds. Longer term, the holy grail is to
turn income into capital, something which artistic creators
can achieve through sales of rights; but it isn't easy - HMRC
has closed off most of the obvious routes. If you're a 'non-dom',
ie not born and bred in the UK, another goal is to remain
non-resident, which means not having a permanent
establishment (fixed place of business) so that you get
taxed only on UK-source
income. If there's one aspect of your business on which
you should consider taking paid-for advice, it's probably
the tax structure. It's so important to get it right at the
beginning!
International Taxation: If an artistic creator
has a static location, she'll trade from there, but one of
the advantages of this rather special way of life is that
you're not necessarily tied to one spot, and you have the
opportunity to base yourself in a low-tax location. Getting
royalty returns without tax may be straightforward inside
the EU if you have a corporate set-up, although some countries
discriminate against low-tax locations, but it can be more
complicated because the foreign country may take a bite out
of your returns, called withholding
tax. Then you have to turn to double tax treaties to try
to get the money back. It's all a bit of a jungle. If you
set up a studio in a foreign country, you need to try to avoid
the 'permanent
establishment' trap, and you may get bogged down in local
VAT.
If you send staff - or yourself - to work in foreign countries
you need to think hard about their tax situation in advance,
both in respect of local
income taxation and perhaps because of withholding
tax.
Tax-Efficient Structures: Faced with relatively
high individual
and corporate
tax rates, many British creators devote minute attention to
forming tax-efficient structures. If you remain tax-resident
in the UK, the use of offshore
trusts is no longer effective, although they can still be
useful for asset protection. Ownership of companies in low-tax
jurisdictions has also become pointless due to ever-more stringent
CFC
(Controlled Foreign Corporation) rules. What remains is
actual emigration, to one of a variety of 'low-tax' or 'offshore'
locations. Cyprus, Malta, Ireland, Jersey, Guernsey, the Isle
of Man, Monaco and Andorra all have their pros and cons. But
as recent cases have made clear, becoming non-resident requires
a very clear break with UK ties. Non-resident artistic creators
meaning to operate in the UK can also use offshore structures,
as long as they avoid the 'permanent
establishment' trap.
Business Incentives: There is a wide variety,
almost a bewildering variety of support
schemes operated by various levels of government, some
of them in association with the European Union, offering direct
grants to support employment, rebates on taxes, tax credits
for investors in small businesses, and R&D
tax credits. Grants are available from several sources, including
the UK government, the European Union, Regional Development
Agencies, Business
Link and local authorities. Many grants are limited to
small and medium-sized companies. Not many of these schemes
will be relevant to artistic creators, but it is well worth
investigating what's on offer. However, the saying: 'He who
sups with the devil needs a long spoon' comes to mind. The
schemes are well-intentioned, no doubt, but they can be intensely
bureaucratic, with very intrusive qualification procedures,
and a long 'tail' of reporting
requirements.
Employing People: Many experienced employers
will just tell you: 'Don't do it'. 'Marry in haste; repent
at leisure', they say, and it was never so true than when
it comes to employment.
Don't kid yourself that employees will feel that they owe
you anything. Today's workers, encouraged by a slew of anti-business
legislation from Brussels, and the general nannying attitude
of government, often feel that the world owes them a living.
Many employers of course bring problems on themselves by treating
employees as little better than slaves. Most artistic creators
run quite skinny operations, but if you do need staff try
as hard as you can to use contractors (ie self-employed
people) rather than employees.
The Inland
Revenue has plenty to say about that, of course, so if
you are left with no choice, realize that you will have to
operate 'PAYE',
provide various statutory social
benefits, and that it is extremely hard to dismiss
an unsatisfactory employee once you have taken them on. Of
course, there are plenty of exceptions to these rather sweeping
generalizations. Lucky you if you find some!
Welfare And Lifestyle: Meaning, for the
artistic creator herself. Obviously, state social welfare
schemes apply to artists as much as to anyone else, although
there may be problems if you operate across national borders.
Many creators will want to have improved (meaning private)
health
benefits, and almost all will want to find tax-efficient
ways of making provision for their pensions. It's important
to separate these from your business itself, in case of failure.
If you have it in mind to retire
to somewhere warmer and less highly taxed, then the time to
start is now, in terms of building
up a pension away from the grasp of the
Inland Revenue.
International Aspects: Perhaps you plan
to live out your life as a respected and contented member
of your local community. The salt of the earth, one might
say, if that's not patronising. But some people, and perhaps
especially artistic creators, will find themselves drawn intentionally
or otherwise to an international existence, working and/or
living in other countries. There are many challenges: apart
from the difficulty of arranging your tax affairs satisfactorily,
there are the problems that go along with property
ownership, education
of your children, international removals, health
care and pension
provision, just to take some of the more obvious issues. Of
course no one can predict the future with any certainty, but
there are all too many stories of people who have trapped
themselves in the wrong investment in the wrong currency in
the wrong place, with multiple taxmen on their backs. Most
such problems are avoidable, with forethought.
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