Self-employment Advice Becoming self employed in the UK is a relatively straight forward process. It involves securing a unique tax reference number from HMRC (the inland revenue) and making steps towards paying any tax you might owe through an annual self assessment process. Two arts organisations, a-n and artquest, have excellent resources that cover the nuts and bolts of registering self employed and answer a range of questions that might follow. This resource by Shape Arts is designed to set out some things to think about before starting this journey. For example, if you work for a company but are considering working on a freelance basis outside of the company, you might want to consider how self employment works before taking the plunge. Links to external resources are at the bottom. What is meant by being self employed? The questions to keep in mind are: is it paid work? and who do I work for? Are you paid? Yes ✓ ↓ No X Is it by a company who decide your hours and place of work and for whom you work regularly, even if not all the time? Assuming you are undertaking work, then if unpaid, you should ensure you receive a form of non-financial support or benefits in kind by volunteering. This might be learning a new skill and receiving certification or recognition for your service; there may be associated non-cash benefits and ‘thank yous’ such as travel and food expenses. Yes ✓ → Do you decide your own working patterns and place of work? Remember, in any paid scenario there may be obligations that require you to do certain things, but the main question is whether the decision to do them is yours to control. Yes ✓ ↓ No → It is likely that you are employed, whether or not the company has formally identified this through verbal or written communications. Employment provides a range of protections for you and your employer takes responsibility for paying the appropriate tax and national insurance contributions on your behalf that you are required to pay as someone with earned income. Because you are the controller of your employment situation, you are responsible for organising your tax and national insurance contributions. This means you have a legal responsibility to register as self employed, so that your income or earnings can be assessed for tax purposes. Text summary of the chart: If the work is paid and you do not receive the pay through direct employment, ie through a company who pays you a wage or salary, then you are both the controller of the work and are liable for any tax owed through earnings. Do I have to register? It is a legal requirement to register as self employed if you are earning money outside of employment. What do I have to do? The links below will take you to the relevant government websites where you can begin the process directly, or find out more. You can also arrange to speak to someone to find out more or help get you started. Aside from having to do it, what are the advantages? It may seem daunting, and many disabled artists may face barriers that make being self employed a significant challenge. The points below are made whilst taking into account that some people will need significant support in this area. You could look at it as a way to get your finances in order. It is a start-to-end process that captures all the things you need to avoid facing unexpected tax bills; for some, the idea of starting their own business provides a sense of achievement and purpose, and is a way to support the professionalisation and independence of their practice. The annual self assessment process is easier than it used to be. You can do it online and the categories are more straightforward than in the past. For example if your turnover is £15,000 per year or less you are not required to submit detailed breakdowns of information. If you claim access to work funding, then being self employed is your only option to qualify for this if you are not directly employed. So it may help you to qualify for essential support for your work and career. What will I be doing that I didn’t do before? Self employment involves keep track of your money coming in (income) and the money going out (expenditure). And keeping this separate from other money you may handle in your life. In other words, treating your art practice as a business, not something personal. By ‘keeping track of’ we mean keeping records. This could be in paper format, done with a calculator, or on a computer/ electronic. Because you are required to keep your records for a number of years, it is worth considering a safe place for them, and keeping a back up of electronic records. The difference between income and expenditure is the money that you will be taxed on. This is your profit or loss situation: you might make a profit one year, then make a loss the next; it can vary over time. See note below on viability. The table below divides income and expenditure into two columns. Income or earnings. The money you are paid for the work you do. Expenditure or costs. The money you pay out to get the work done. In this column you might find it useful to group totals by each separate company or person you worked for. Each is a subtotal, which together give you your final income figure, known as the gross. This column is where you group together the different cost areas. Each total gives you a subtotal, and together they give you your final, or gross, expenditure figure. One way to do this if you are unsure which costs to include is to put in all the costs to begin with, by group, and then work through a checklist of areas that are permitted or not permitted. It is important when you do the checking that you do not blend in business costs with personal costs. For example, your travel cost for personal use should not be included in the travel you do for work. Some general costs (known as overheads) such as heating and light can be split up into the amount of use given to work (business use). Guidance is available for this, and you may find that keeping track of hours you spend working, or for your business, helps you to keep these figures accurate. Gross income amount £ Gross expenditure amount £ Income minus Expenditure = net income (profit or loss) The figure you arrive at after deducting expenditure from income is your net income and is the figure which determines how much you pay in tax and national insurance contributions. If the income figure is higher than your expenditure then this is termed your profit, and if your expenditure is higher, then this figure is termed your loss. Your earnings viewed as a whole is termed as turnover. It is important to distinguish between turnover and profit, which is like the difference (for an employed person) between your gross salary and the actual amount you have left on your payslips after employer deductions. What your profit looks like compared to turnover can, over time, give you an idea about the viability of your business- ie how likely it is to succeed without making changes. There can be times when it is important to distinguish between them. For example, if you receive access to work funding. This is because some of the decision by DWP to fund you is based on your annual turnover (all the money that comes to you in the year), not your profit (the money left once you have paid all your outgoings) and so being self employed helps to establish what this figure is. You may be required for example, to prove that your business has a turnover of a minimum of £5000 a year in order to qualify for support. Let’s say that you earned £20,000 overall, but declared your profit instead of turnover, then you might be declaring a figure like £3000 – in this case, where your outgoings (expenditure) came to £17,000. Can I be self employed whilst on benefits? As with many questions around benefits, it may depend on which benefit you are in receipt of. The issue may not so much be about registering as self employed, but the level of income you gain and working hours you do. Clearly, if you are receiving certain benefits, you will need to consider the amount of time (hours/days) you are permitted to earn the amount of money you need. And to make sure that you can identify your profit or loss figure: some benefits will only be awarded if your net income (the money you keep after all expenditure is settled) is at a particular amount. This is another reason to keep in mind the difference between turnover and profit. Also, you will be calculating your self employed amounts over the period of a year (your financial year) – when some benefits might be calculated on a monthly or even a weekly basis. Let’s break this down a bit: A self employed artist is required to keep a record of payments received, invoices and receipts relevant to their art practice (as a business) and complete a self assessment form once a year. The receipts, payments and invoices should be divided into financial years. So, if the artist decides to run their year from 1st June to 31st May each year, then that is how the paperwork should be divided up. If the artist was also receiving benefits, then they would need to know what constraints there were on their art earnings. This could include hours per week they are permitted to work, or amounts per week they are permitted to earn. Clearly, the more hours worked and the higher the level of income, the more likely that the artist will reach a level, or threshold, where they are at the maximum permitted by the benefit rules. Remember, however, the difference between turnover (total amount of income) and profit. Is it the turnover or the profit you should declare to the benefits agency? The reality is that most of us may plan our time over the full period of a year, when the benefits rule applies on a weekly basis. Apart from illustrating how unfair and unrealistic benefit rules can be, it underlines the fact that the self employed disabled artist must be aware of these issues in order to support their career and livelihood. Does self-employment require me to be good at accounting and maths? As we’ve seen already, it is important to grasp key ideas around income and expenditure. How we arrive at a profit or loss, for example, is important. And we already know that disabled artists may face barriers in these areas. Perhaps a useful way to think about it is: you don’t have to do it yourself, but is has to be done. In other words, seek the support you need to get it done, wherever possible. Delays to completing your self assessment form can result in fines. If you require access support for getting this kind of admin done, and you are being paid for the work you do, then access to work can provide funding to pay someone to support you, or, if necessary, pay for the relevant equipment you need. If this applies to you, go to the access to work resource for more information. Clearly, any number of things could make organising your career more difficult. Receiving benefits is a significant area, although do try to find out more about the information that is available to you before avoiding self employment on the grounds that it causes worry or seems too difficult. If you have not yet begun earning money through your practice, and are in receipt of benefits, you can ask your contact/advisor to confirm in a way accessible to you what you are entitled to earn, or hours you are entitled to work. The more concrete information you have, the better chance you have of making a decision that helps your career. Looking ahead and growing my business We are developing a separate resource for growing a business, but for now, it can be important to consider what is meant by viability. All businesses shrink and grow over time and it is rare to have the exact same pattern of income and expenditure each year. If you are approaching a bank for a loan, for example, they may want to look at how the business has fared over a three or five period in order to get a better sense of its chances of surviving – or even thriving. In this case they may look into specific areas or they may gauge your average turnover or profit and make decisions based on this. For disabled artists, who may depend on external support such as access to work, the issue of viability can be vital. If you are employed, then generally the viability of the company is not assessed: only your role within the company. If you are self employed however, you may be required to reaching a certain level of turnover in order to qualify for further support. To support your case, do look at all forms of earnings which can be considered. Consider the grants and awards you might receive, as well as sales or payment for your services. Think how you would build a case to defend yourself. Let’s say you ran your business at a loss in one year. Does it impact on your viability, if your turnover was still at a required level? It might seem so, but in fact running at a loss might be due to timing issues, or you may have deliberately spent more that year to invest in your business. So the loss was part of your plan. For example by purchasing a new computer or equipment. It is also worth looking ahead. Do you have offers or promises of other work coming your way? Are you applying for grants or getting close to an event where you might achieve sales? Remember: viability is about how a business survives or thrives over a period of time. Not all business which are viable run at a profit in every year. For a variety of reasons it might be more important to you simply to keep your business going, even if in one year, or more, you technically are running at a loss, instead of profit. What if my self employed earning levels are higher, or self employment is my main or only form of income? Regardless of income level, you will be using the same process overall to calculate your tax and earnings. There will still be the two columns to consider: income and expenditure. If your earnings levels are above £15,000 a year (that’s your business year) you may find that you are required to provide more detail in your tax return, ie your self assessment form. Some people find that paying an experienced or qualified person to do their accounting for them is beneficial – it may save you time and provide a necessary kind of support – and it may be that someone with more knowledge may be able to ensure you are not inadvertently paying more tax than necessary. You will increase your costs by paying them but even this can be taken into your expenditure considerations, and need not be of disadvantage to you. Overall, apart from being prepared to go into more detail about your income and expenditure, you might wish to give more consideration to protecting your business interests over the longer term, and this could include investing in certain insurance, equipment, software or processes that save you time and effort or cost in the longer term. Links to external resources: a-nhttps://www.a-n.co.uk/tag/self-employment/Various links and blog articles about self employment in the arts. Art Quest How To...How to register as self-employed If you are getting paid for work or selling art, it is a legal requirement to register as self-employed. But what does this mean? This link outlines things you may need to know. https://www.artquest.org.uk/how-to-articles/registering-as-self-employed/ How to go about registering as a businessThis guide discusses the main points you should consider in the early stages of starting out as a self-employed art practitioner, designer or creative business. https://www.artquest.org.uk/how-to-articles/setting-up-a-business/ Business & self employment info from gov.uk A government resource for Information about starting up and running a business in the UK. https://www.gov.uk/browse/business Business Survival TooklitThe tools you need to help your creative business plan, adapt and grow. Whether you are self-employed, run a small creative team, or manage a cultural business of two hundred people, this toolkit is for you. It offers hands-on tools to help with the big decisions arts, heritage and creative organisations make every day. Looking to start up a new creative business? Wondering how to build a marketing strategy? Need help with governance or fundraising issues? This toolkit is here to help you act now. Creative & Cultural Skills https://www.ccskills.org.uk/knowledge-centre Being an arts entrepreneur Sector Skills Assessment A creative passion is at the heart of every enterprise. Many entrepreneurs have developed their creative talents into successful businesses in the creative and cultural fields. Starting a businessOur research shows that freelance and small businesses make up the majority of the creative industries, so this section is dedicated to helping you develop your business skills. Transition to FreelanceArticle on Creative Choices with tips on becoming a freelancer. Writers & ArtistsWhy should I register as self-employed?https://www.writersandartists.co.uk/advice/why-should-i-register-self-employed If you are planning to undertake freelance work – namely where the person asking you to do the work expects you to pay your own Income Tax, National Insurance and usually to have your own insurance cover – then you should register as self-employed. Click on the link to read more. Banner Image: A person with long black hair with red streaks in sits facing an open laptop at a table. The screen reads: 'People can lead from the centre - they don't have to be at the top. They can be producers, creative, advisors, it's not about what you do but how you do it. They know what they stand for and want to make a difference. I'