Being Self Employed & Earning Money

Being Self Employed & Earning Money


Self-employment


Definition:

To be self-employed is to be an owner of a business and to earn money by working for themselves as opposed to working for someone else as an employee.

Of course, there are pros and cons to being self-employed (like many other things), here are a few examples:


Pros:

*Be your own boss - No one can tell you what to do and you have the freedom to be as creative as you want and try out as many ideas as you desire.

*Choose your own hours - This is convenient as you can wrap work around your family life.

*Claim tax relief on things such as transport, advertisements, etc

*National Insurance costs less


Cons:

*A lack of free time - Since you own a business, it's going to keep on your toes.

*You'll work longer hours than most people.

*Cut down on holidays - If you take holidays, you miss out on money (same thing if you take a sick leave).

*Can't take a break from your work life as long as you're self-employed.

*You're responsible for any losses.



Why is it important that you have a professional approach within in the music industry?

If you want to be the best at what you do, then you need to carry yourself to the destination you desire to be at. Simply put, you cannot rely on others to hold your hand and take you there. The music industry these days isn't just about the music, it's also about the money now so artists (regardless of how good they are) also need to have a business sense if they are not only to rise to the top, but to also sustain themselves at the top.

This is related to being self-employed more than you think. As I said earlier, you cannot rely on anyone to hold your hand if you want to reach the top so you must take everything upon yourself and do everything. For example:

*Going to the studio yourself (self-employed) rather than someone calling you to go (employed).

*Keeping track of your own profits and expenses (self-employed) as opposed to someone else (namely an accountant) doing it for you (employed).

*Booking studio sessions, arranging your projects, picking out your own clothes (for gigs/tours/interviews/etc) (self-employed) instead of having people paid to do such things for you (employed).


The main difference between someone who rises to the top then tumbles down and someone who rises to the top and sustains their position is to treat yourself and your music as a business meaning something you can sell to the market/audience/etc, but most importantly, you must rely on yourself and be responsible for everything, much like people who are self-employed and own a business.



Tax


In 5 years, I'd like to be working in the music industry mainly as a recording artist and producer, however I'm also interested in being a studio engineer.

Below is a hypothetical income scenario


£100,000
- £10,000 (personal allowance)
= £90,000
- £31,865 (tax bracket for 40%)
= £58135 - 40%
= £23254 

20% of £31,865 = £6,371

£23254 + £6371 = £29,625 (tax)


This is only relevant to you if you don't have tax deductibles. Tax deduction is a legal reduction of income subject to tax. For example, items you purchase that's related to your business are tax deductible such as studio equipment (mics, mixers, headphones, etc), a wardrobe of clothes for live shows and TV appearances, etc.

You take the tax deductibles off the £90,000 because your personal allowance is £10,000. Otherwise you have to spend £90,000 towards things relevant to your work to not pay tax. 

You also need to keep it "realistic" if you earned £100,000 in the (relevant) year and claim a lot of it (for example, around 50% of it or more) is tax deductible, someone may get suspicious and decide to check things out (or send someone to do it). So to prove/back-up your claims, you need to keep track of your finances by keeping things like receipts, etc.

There is also "self-employment tax" and "employment tax". The difference between self employment tax and employment tax: No difference, they just have different names. Both taxes are paid to the Social Security Administration, however self-employment taxes are based off of how much the business (that you own) earned while employment taxes are based off of how much the employee earned from employment (with an employer).


Expenses




Definition:

This is money you spent within the tax year that is tax deductible and reduces tax income because the items you bought are directly related to your work/business/etc.


As you are working in the music industry, you can buy many items which can be classified as tax deductibles, such as:

*Computer/Laptop - This can be really helpful when you're in the music industry, such as producing on a DAW, writing lyrics and mastering tracks, etc.

*Speakers - Because you're going to need some good quality sound to listen to your own music when you're recording/mastering.

*Instruments - Composing, recording and performance purposes mainly.

*Music (Vinyl/CD/MP3) - You make music, and there's the saying "nothing's new under the sun" so

*Transport (such as cars/motorcycles/etc) - However only to an extent, as you can use it to go to places such as gigs. Think about it, you go to a gig to listen to music and that is directly related to your job.



Then there are various examples of what musicians/artists/performers buy which isn't exactly tax deductible, for example:

*Alcohol - Very infamous, especially in Hip-Hop as rappers who would get a major deal would buy many things and the vast majority of them buy alcohol, namely Ciroc.

*Clothing - For yourself to show off rather than clothes for gigs/interviews/etc.

*Booking a hotel room.

*Food/Drinks.