Tax and accounting are often not welcome tasks for photographers, who invariably prefer spending their time being creative. It often becomes the last task on the list and subsequently there can be some pressure around deadlines if things are left until the last minute. Fortunately, help is available and technology allows for an easier ride these days. Find out tips for completing your tax in a hassle-free way.
Registering for tax
Sometimes photography starts as a hobby as you volunteer yourself to shoot a friend’s wedding, or a corporate event in your spare time. Before you know it, it evolves into paid work and your weekends are booked up. Then you are able to go part-time in your employment, or move across to freelance photography full-time.
Once you start to earn any income under self-employment it is necessary to register for tax with HMRC.
This will get you on the radar for completing an annual tax return, and when profits reach a certain level you will need to pay income tax and Class 4 National Insurance under self-assessment.
How much will depend on your other income streams; i.e. employment, property income or other self-employments.
Recording your income and expenses
It is important to keep an accurate record of all the income you have earned, plus all relevant expenses.
Tax-deductible expenses may include:
- Travel to and from photo shoots
- Overnight accommodation and food, if away working
- Mobile phone
- Computer costs
- New camera equipment
- Photography software
- Marketing & advertising costs
- Bank interest and charges on a business account
- Subscriptions, to monthly photography magazines
- Website costs
- Training and education, where it relates directly to improving your existing skills
- Use of home office
There are quite a number of legitimate expenses that can be offset against your income to help keep your tax bill low. It is important to keep a record of these costs, plus receipts as evidence.
Accounting software for photographer
Using a cloud-based accounting software package enables your income and expenses to be recorded much more easily and accurately that any manual system.
The benefit of using a system like this is that it links directly to your bank account, pulling in transactions and analysing them for you, according to the previous allocation.
For example, a monthly bank charge will only need your input once, after which the system knows to mark all future bank charges under the same category.
A good online bookkeeping package saves hours of your time, meaning you are free to work on building up your portfolio of clients and seeking more freelance work.
The system also takes care of invoicing, tracking payments from your customers and financial reporting, so you can watch your business grow. It is also possible to scan receipts of expenses from your mobile phone and everything updates automatically.
“Since using the software provided by AJN Accountants, I have saved a day each month in recording my income and expenses, and I now have access to current financial figures” Murray Clarke – Freelance photographer
Completing your first tax return
Depending on when you start earning income will depend on how long you have before you need to complete your first tax return.
The tax year-end for everyone is 5 April, so if you start your business in May, you will have quite a while until anything is required of you. If you start in March, then you will have a shorter period before you need to get organised.
Generally, most freelance photographers will work in accordance with the tax year-end and will work their accounting records to either 5 April, or 31 March, which is generally acceptable with HMRC.
Work with a specialist accountant to ensure you have claimed the maximum tax relief and your tax return is completed accurately.
Even if it seems like you have a long time until any official deadline, it helps to get organised in advance.
Paying your tax
Tax payments for freelance photographers are due in January and July.
January is the main date for tax payments and covers any tax due on the previous period to 5 April.
For example, your tax bill to 5 April 2017 is £1,000; this is due on or before 31 January 2018. In January 18, you would also need to make your first Payment on Account, which in this example would equal £500, being 50% of the tax payment. This is a forward payment towards next year and sits as a credit on your tax account with HMRC.
July is when you make another Payment on Account, usually of the same value as the first one.
So in this example, you would pay another £500 in July 2018.
The tax system can be confusing, particularly in the first year or so, until you get in the swing of it.
Make sure you monitor deadlines carefully, as penalties and interest do accrue for missing the filing dates and for not paying your tax on time.
registerING for VAT
The VAT threshold is £85,000 so if your income reaches this amount within a rolling 12-month period, then you will be required to register.
Registering for VAT means you have to add 20% on top of your invoices, which make your services more expensive, particularly for customers that are not VAT registered. For other businesses that are VAT registered it won’t matter as they can claim back the VAT proportion themselves.
There are some expenses that you can offset to reduce your VAT. The most important thing though to note is that you are required to complete a VAT return every three months, so keeping on top of your bookkeeping is vital if you are VAT registered.
It may be possible for you to join the VAT Flat Rate scheme, but this needs to be discussed with your accountant and may not be worthwhile following recent changes to VAT legislation.
tradING as a limited company
There are tax benefits for photographers to trade as a limited company, when your income and profit reaches a certain level.
This needs to be discussed with an accountant as it isn’t a case of one size fits all – it will depend on your personal circumstances and your plans over the next few years, but shouldn’t be ignored as tax savings can be significant.