Wednesday, January 29, 2014

What can artists claim as business expenses - for tax purposes?

Here's a list of business expenses which can normally be claimed for tax purposes by an artist who is making a serious effort to sell art and make money. 

Image courtesy of Stuart Miles / FreeDigitalPhotos.net
To be able to claim expenses and a self-employed status you must be conducting your business in a professional way and with the intention of making a profit.

In other words you must be able to show it's not just a hobby. The tax authorities will not allow you to make endless losses which fund your hobby as an amateur artist.

Also - you do need to have

  • registered as self-employed to claim expenses 
  • produced accounts.


Allowable Business Expenses for Artists

General principles

The general principal which applies to artists is you can claim items which you need to make and sell art - for a profit.

Thus you can claim for items which are:

  • directly and wholly related to making art 
  • generally accepted as normal and used by many artists when making art
  • not unduly excessive or extravagant.
Below I've included notes about normal business expenses

Do please comment and suggest anything else you think should be included.  I'll update this post with good suggestions - and give credit and a link to your blog.

Tax in the UK

In the  NEXT tax year (2013-14) in the UK, HMRC are introducing a new scheme called Simpler Income Tax for the Simplest Small Businesses.  It greatly simplifies the methods of accounting to be used for very simple small business - such as being an artist.



This is explained in Simpler Income Tax for the Simplest Small Businesses: Technical Note.  In essence, this will allow accounts for very simple small businesses to be made up on a receipts and payments basis


It defines payments as follows
allowable payments are expenses paid wholly and exclusively for the purposes of the trade, including for non-durable assets and payments of VAT (but excluding business entertaining and purchase of property or other “investment” assets. It will no longer be necessary to calculate and claim capital allowances. 
I'll write more about this - but it's certainly a very attractive way of accounting for tax for many artists. 

Art Supplies

In general you can claim the materials used in making art.  However this is not an excuse to hit the art supplies shops and order all the things you've always wanted to own.  Expenditure needs to be proportionate to sales.

In broad terms you should only claim the cost of stock used during the year to make art and achieve sales.

Art Competitions / Juried Exhibitions


You can claim:
  • entry fees
  • hanging fees
  • commission on sales

Computers and printers (and other expensive office equipment)

These are a business expense - but how they that expense should be treated for tax purposes will very much depend on what tax regime you have to live with. 

In the UK, there has been a drive to make life simpler for people.

Exhibitions


Rental of spaces for exhibitions is an allowable expense. The expectation will be that you make sales as a result so I wouldn't try this one too often if your sales don't cover costs.

Framing

Framing is an interesting one.  Frames are expensive - and you don't want to have too many lying around unused! I guess most artists have reused frames and swopped them round given how expensive they are.

My recommendation would be to 
  • avoid paying out for too many unused frames. 
  • adopt the practice of claiming the cost of the frame when you make a sale.
If you take them for personal use then you should 'pay' for them and credit your business with the income.  That then neutralises the expenditure in the accounts.
If selling direct, you can arrange to have a picture framed to the client's requirements and charge the full cost direct to the client - which has a completely neutral effect on your accounts.

Framing for a solo exhibition at a gallery can be an enormous cost. If having solo exhibitions periodically, it's probably worth investigating the practice of averaging costs across a period of years so you don't get all the income and expenses cropping up in one year.

Insurance


Insurance of art in an exhibition and in transit is a business expense.  You need third party cover if you're teaching.  See Insurance for Art and Artists

Marketing Expenses

The cost of business cards, flyers, posters, advertisements etc are normal business expenses.

Photography

Professional photography fees relating to photographing artwork for catalogues, books etc is a business expense. 

Be careful about cameras. If you have a camera which you only bought for reference photos and normal photography associated with putting work online for sale then this is a business expense. However if a camera is used mainly for domestic/personal purposes and only occasionally for art then this probably brackets it in the "hobby" category and it's not eligible as an expense.

Watch the price of the camera. Expensive cameras probably need to be treated like expensive items of equipment and categorised as capital and hence claimed against tax over time based on whatever is the regime for capital allowances.

Postage, Shipping & Couriers

The expense of getting artwork to a client or to an exhibition is a business expense. 

If you want some help in working out the best way to do this you might like to consult my very popular website How to pack, post and ship art - Resources for Artists

Professional Education

Continuing professional development is a normal business expense. It's worth checking with your local tax people what is and is not allowed.  For example membership of a professional association is normally allowed - with the emphasis on "professional".

Studio

If you're renting a studio then the rent and any running costs are obvious business expenses.

However you can also claim if you are working from a home studio.  What you can claim depends on your local tax regime and these represent variations on a theme

  • You can claim a reasonable amount for occupying a space for business purposes. You need to prorata things like utility bills if the studio is within the home.  You can't claim a rent if you don't pay one. Keep all the paperwork for your calculations in case you get an audit.
  • Some tax regimes insist that the room must be dedicated as a studio. However, if that's the case do be careful that you're not causing any problems with planning permission - by having a commercial activity within a domestic home - and/or creating a potential future problem with capital gains tax (if applicable) when you come to sell with respect to the part of your property which you use as a dedicated studio.
  • The new UK tax regime for small businesses means there will be NEW defined rules as to what will be allowed as business expenses.  

Use of home for business purposes
9. Businesses that use the home for business purposes can opt to use a standard deduction based on the amount of time spent working at home.
10. This calculation is set out in section 94J and is as follows: 
11.Number of hours worked at home per month x applicable amount 
12.The applicable amounts are as follows:

  • 25-50 hours per month £10 
  • 51-100 hours per month £18 
  • 101 hours or more per month £26
13.Alternatively businesses can choose to claim any allowable portion of actual expenses.

Telephone / Broadband


Having a separate line for business calls and your broadband simplifies greatly the issue of what the split should be for domestic and business.  It also means you get to have a dedicated answerphone message which sounds rather more business-like.

All telephone and broadband equipment (e.g. phones / answering machine / modem) generally comes within the remit of equipment which can be written off in one year - but this is something which can vary between tax regimes so do check before assuming it can go down as an expense as opposed to an item which needs to be depreciated.

Travel


Artists travel for a variety of purposes and all journeys which are necessitated by art (business) activity are legitimate business expenses.

  • plein air painting / collecting reference material
  • marketing your art 
  • getting artwork to and from exhibitions / clients / galleries
  • collecting art supplies 
Check your local regime to see what's allowed. Normal public transport expenses are allowed. There's normally a mileage rate for cars.

Tax Tips for Artists


Following on from yesterday's post and the one last year, I've started a website called Tax Tips for Artists.  It's a work in progress at the moment.  Do let me know if you know an article worth sharing with others.


5 comments:

Sue Pownall said...

This is so useful. Thanks Katherine.

Olha Pryymak said...

thank you for this! So are you planning to write off your new ipad on the next return?

Katherine Tyrrell said...

No - the rules are changing. The only capital assets which will be allowable from 2013/14 are those which are 100% used for business.

ian said...

As I understand it, although art materials can be claimed as expenses for tax purposes, this is only as they are used. So if I buy a pack of paper for printmaking I can only claim for the paper used in prints I have sold. Am I correct do you think?

Nathan Ambrose said...

Hi Katherine.

That's very comprehensive. It's good that you wrote this, as so many are confused over this subject, or just assume that everything is tax deductible.

As I always get clients who ask about these things, I wrote a post last night to provide up to date help about marketing expenses. Your readers may be interested: Are Marketing Costs Tax Deductible in the UK?.

Thanks for writing. Tweeting soon.

Nathan.

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