Tax and Self-Employment
While every effort is made to ensure the information in this article is accurate, Visual Artists Ireland and the author can accept no responsibility for loss or distress to any person acting or refraining from acting as a result of the material contained herein.
Self-Employment – The Advantages
Being self-employed means you are carrying on your own business rather than working for an employer. With this there are many advantages and disadvantages.
From a financial view point the primary advantage of being self-employed is that you are given greater flexibility in the expenses you can claim for tax purposes. Costs allowable under the PAYE system (where you are employed by another person or company) are very limited in comparison.
There are more tax planning opportunities available to the self-employed. For example, suppose you had intended carrying out repairs on your studio next year. You also plan to travel for 6 months and you know that you won’t be earning much income. However, this year you’re earning quite a lot and you know your income will be taxed at the higher tax rate. You could bring forward the planned renovation to the current year, as it will be tax deductible at the higher tax rate. Being able in part to control the timing of your expenses and income allows you to maximise the tax break.
As a self-employed artist you may qualify for the Artists Tax Exemption. The artists tax exemption is only available to the self-employed – so you must be registered as self-employed to avail of this tax break. You can be in employment part-time (i.e. you earn PAYE income) and be self-employed and still qualify for the Artist Tax Exemption. However, you only receive the tax exemption on your self-employed income – that is your creative earnings. If you have a PAYE position that involves doing creative work that would otherwise qualify for artist exemption it will fail to do so on the grounds that it is a PAYE position. A PAYE salary will be liable to income tax. Your self-employed creative work will qualify for the artists tax exemption.
More info on the Artists Tax Exemption can be found towards the end of this article.
Other advantages of working for yourself include:
- The flexibility it affords
- Greater control over your work and life
- Retaining responsibility for the direction of your career
- Increased potential for financial reward
- Added motivation
Self-Employment – The Challenges
One of the main challenges of being a self-employed artist is that your income can be sporadic, especially for those starting up. You alone are responsible for the amount you can earn so motivation and a determination to succeed is key.
To be self-employed and run your art practice as a business you will need to broaden your range of business skills. You are responsible for every aspect of your work. For example, as self-employed individuals, artists have a duty under health and safety law to ensure that their working environment complies with health and safety legislation. (You can read a text on Health and Safety for Artists on this website here) . You will also need to learn about bookkeeping and cash-flow management (See text on Budgeting and Financing here).
If you’re not careful you may end up spending more time running your business than you are on doing the work that attracted you to self-employment in the first place.
Once you become self-employed you fall within the provisions of self-assessment. This means that you are personally responsible for ensuring that your tax affairs are kept up to date.
You will need to be disciplined about your taxes. Each year you will pay your income tax in one lump sum so it is necessary to be diligent about saving.
There is increased stress in working for yourself and as a self-employed individual you won’t be able to receive holiday or sick pay from an employer.
Ultimately being your own boss and making a successful business for yourself is hugely rewarding and if you’re willing to accept the additional risk and stress involved it is worth the extra effort. http://www.westdean.org.uk/
Registering as Self-Employed
Once you are self-employed it will be necessary to register with Revenue for Income Tax. This is done by completing form TR1 available on the Revenue website here. Parts A & B need to be completed to register for Income Tax. This is also the form used to register for VAT, PAYE (if you are an employer) and for RCT (Relevant Contracts Tax - It is used in the construction, forestry and meat processing industries and will not be relevant to most artists.) Thus, much of the form will not be applicable when you first register for income tax. VAT is examined in more detail in our VAT article here .
It is advisable to register for income tax as soon as you begin trading, although the registration can be backdated. Your first income tax return falls due on 31 October in the 2nd calendar year after you first start trading. For example, if you start trading in June 2009 your first tax return will be due by 31 October 2011, so you need to register in time to file your return by this date. If you started trading in 2011 then your first tax return falls due on 31 October 2013. The Revenue Commissioners offer an extension to the income tax deadline of around two weeks if the tax return is filed and paid online, using the Revenue Online Service (ROS).
It is important to note that although income tax registration can be backdated, Artist Tax Exemption cannot. So if you start trading in 2011 and want to receive Artist Exemption you will need to register for income tax and also apply for Artist Tax Exemption by 31 December 2011 in order to be approved for the scheme for 2011.
Being Employed as well as Self-Employed
There are specific Tax and PRSI implications if you are both in employment as well as being self-employed. Many artists have a PAYE position (i.e. are in employment part-time – for example teaching) in addition to their self-employed income. This can be a good balance, which works well in practice. The PAYE employment provides a regular income as well as entitlements to social welfare benefits that might otherwise be foregone.
When there is a mixture of PAYE and self-employment it is still necessary to register under the self-assessment system. The employer will deduct the necessary PAYE and PRSI from the employment income and the artist will need to account for any additional tax due when filing their tax return.
The total income i.e. employment and self-employed income is declared to Revenue. The tax is calculated on the total income and the taxpayer receives a credit for the PAYE that the employer has deducted at source.
Books and Records
Once you become self-employed it is necessary to maintain proper books and records to enable you to make your returns to Revenue.
Recording Income & Expenses
When invoicing clients the following information should be included:
- your name and address
- name and address of the customer
- date of issue of the invoice
- date of supply of the goods or services
- full description of the goods or services
- the quantity or volume of the goods supplied
- cost of the goods or services
- sequential invoice number
As well as keeping copies of all invoices issued and received you will need to record the details of all your sales and purchases. Details of how to record your financial information can be found in the ‘Analysing Payments & Receipts’ section of the article on ‘Budgeting and Financing’ by David McConnell which you can read here.
You can claim for any business expense that you have incurred in order to earn your profits. These expenses are normally referred to as revenue expenditure. Revenue expenditure can be seen as the day to day running costs of your business, and may include such items as:
- Office/computer supplies
- Rent of business/studio space
- Professional/legal/accounting fees
- Agent commission
- Research – books, journals, subscriptions etc
- Visits to museums/galleries
- Motor expenses
- Travel & subsistence
Any expense, not wholly and exclusively incurred for the purposes of your profession is not allowed. This would include any private or domestic expenditure. For example food & clothing (except protective clothing) cannot be claimed. Also, business entertainment expenditure – i.e. provision of accommodation, food, drink or any other form of hospitality to clients or buyers is specifically disallowed.
Where expenditure relates to both business and private use, only that part which relates to your business will be allowed. Examples of such expenditure are rent, electricity, telephone charges etc., where a business is operated from home. These expenses will need to be apportioned to exclude the element of private use.
Revenue will accept estimates for business use. For example if someone works from home they would typically claim 1/3 of their light and heat bills as business expenditure.
You can claim a deduction for the running expenses of a motor vehicle used for business purposes. There are two different methods of claiming motor expenses. You can claim the actual running costs incurred or you can claim a “flat-rate” motor expense based on the business mileage incurred. Journeys between your home and regular place of work are treated as private and not business. Full details of the mileage allowance are explained by Revenue here.
You can claim a deduction for costs incurred during time spent away from your normal place of work / studio on a business trip. As with motor expenses, you can either claim the actual costs incurred or the “flat-rate” expenses. The full workings of the flat rate expense details are available from Revenue here
Expenditure is regarded as ‘capital’ if it has been spent on acquiring or altering assets which are of lasting use in your business, for example, the purchase of a computer or other equipment. You cannot deduct the cost of this type of expenditure in arriving at your taxable profit. You can, however, claim capital allowances on capital expenditure incurred on items such as office equipment and business vehicles.
- Calculation of Capital Allowances
Capital Allowances are calculated at a rate of 12.5% (per year) of the net cost. The allowance is granted for 8 years until the full cost of the asset has been claimed. For example, if you purchase a computer for €1,600 in 2011 you can claim €200 (12.5% of 1600) of the cost as a tax-deductible expense each year from 2011 to 2018 inclusive. By claiming €200 each year for 8 years you are getting a deduction for the full €1,600 paid for the computer.
Keeping Books & Records
Under the self-assessment system you do not have to present your books and records to Revenue when filing your tax return. When you submit a return you must give details of your income and expenditure, but you do not provide any supporting documentation. However you must retain your books and records for 7 years as Revenue have the right to audit your return and request access to your accounting information. In the event of an audit Revenue will want to see sales invoices, purchase invoices/receipts bank statements and credit card statements.
Preparing Your Accounts
Once you have recorded your income and expenditure you will be in a position to prepare you accounts. This is simply a matter of transferring your totals from your sales and purchases books into an income and expenditure account. The result should look something like the sample below. Once done, you are ready to input the figures onto your tax return.
INCOME & EXPENDITURE ACCOUNT
YEAR ENDED 31st DECEMBER 2011
|Profit After Capital Allowances||14,850|
Filing Your Return
The due date for filing your 2010 income tax return is 31 October 2011, with the availability of a two week extension if return is filed and paid online via www.ros.ie. Your income tax return is filed on a ‘Form 11′ which is available on the Revenue website. Revenue also provides a useful guide to completing the form which is updated annually. The 2011 guide has not been published yet, but the 2010 version is available here: www.revenue.ie/en/tax/it/leaflets/form11-2010-notes.pdf
Calculating your tax – Rates & Allowances
There are 2 concepts to understand in calculating your income tax. These are “Tax Bands” and “Tax Credits”.
There are two income tax rates. The standard rate is 20% and the higher rate is 41%. In 2010, for a single person the first €36,400 of income is taxable at the lower rate and the balance is taxable at the higher rate. The tax band represents the amount that is taxable at the lower rate. This is also known as your cut-off point. Tax bands & tax credits were reduced by around 10% in 2011. The single person’s tax band/cut-off point in 2011 is now €32,800.
For married people tax bands and tax credits can be transferred between spouses so they are best utilized for tax purposes.
Tax credits are offset against the income tax payable. There is a standard personal tax credit of €1,830 for 2010. A married couple would have a joint personal tax credit of €3,660 (€1,830 x 2) that can be divided between the spouses in the most tax efficient manner. The personal tax credit for 2011 has been reduced to €1,650 for a single person and €3,300 (€1,650 x 2) for a married couple.
Tax bands and credits are best illustrated by way of an example.
Income Tax Calculation for 2011 (assuming single person & ignoring Universal Social Charge/PRSI)
Taxable Profits (from trade)
32,800 @ 20%
|7,200 @ 41%||2,952|
Less Tax Credit
Other Tax Credits/Deductions include:
- PAYE Tax Credit (2010: €1,830 , 2011: €1,650)
- Trade Union Subscriptions (discontinued from 2011 onwards)
- Pension Contributions
- Medical Expenses
- Rent Relief
- Bin Charges
- Tuition Fees for approved courses (restricted from 2011 onwards)
A list of credits and reliefs has been published by Revenue here
The income levy was discontinued from 1st January 2011 and merged into the Universal Social Charge (USC) along with the health levy. The income levy was brought into effect on 1st January 2009 and the rates and thresholds were changed in April 2009. It remained as a deduction in 2010 and details of the rates and thresholds for that year can be found here
Universal Social Charge (USC)
The Universal Social Charge came into effect on 1st January 2011, and it replaces the income levy and health levy. It is payable on gross income, after relief for most capital allowances, but before pension contributions. It is also payable on artist exempt profits, but is not charged on social welfare payments.
All individuals pay the USC if their income exceeds €4,004 per annum. The rates and thresholds for self employed individuals are as follows:
- 2% – on income up to €10,036 per annum
- 4% – on income between €10,037 and €16,016 per annum
- 7% - on income between €16,016 and €100,000 per annum
- 10% – on income over €100,000 per annum
Exemptions to USC
Those earning less than €4,004 per year are exempt from the USC.
All social welfare payments are exempt from the USC.
Self employed individuals aged over 70, and those under 70 who hold a full medical card, pay a top rate of the USC of 7%. If someone over 70 earns more than €4,004 per annum then they are charged 2% on the first €10,036 as normal, 4% on the next €89,964, and 7% on the remaining balance above €100,000.
Full details on the Universal Social Charge, including FAQs and a list of exemptions, can be found here.
Penalties & Interest
Failure to file an income tax return on time will lead to a tax-geared penalty. Late filing within 2 months leads to a 5% penalty and after 2 months the penalty is 10%. Revenue can also charge interest on late payments of tax at a rate of around 8% per annum.
It is possible to file your income tax return online. A computer version of the “Form 11” can be completed and loaded through www.ros.ie. The Revenue application has the added advantage of calculating your tax for you. Additionally an extended deadline is offered for online filing.
The 31 October deadline is also the due date for preliminary tax (extended for electronic filing). Preliminary tax is a payment of tax, on account, for the current year. PAYE workers have their income taxed as they earn it so there would be a huge cashflow advantage to self-employed people if they didn’t have to pay tax on earnings until 10 months after their year end. To redress this Revenue tax a self-employed person’s income in the year they earn it by way of preliminary tax. So preliminary tax for 2011 is due by 31 October 2011 and it is fully refundable to the extent that it covers the final tax bill for the year. If preliminary tax does not cover the final liability for 2011 then the balance is payable by 31 October 2012.
There are two main methods used to calculate preliminary tax. The most common one is to use 100% of the tax liability for the preceding year. At 31 October in you should know your final tax liability for the prior year. As this is a definite figure preliminary tax paid for the current year can be calculated exactly. Paying 100% of the final liability for the prior year will satisfy the preliminary tax obligation.
With the introduction of the Universal Social Charge (USC) there is a slight exception to the rule in 2011 if you are calculating your preliminary tax based on 100% of 2010’s liability. Preliminary tax should be calculated on the basis of the final liability for the year 2010 as if USC at the appropriate rates had been applicable for that year, and as if the income levy and health contributions had not been payable for 2010. If you are unsure about the treatment of this you should consult an accountant/tax advisor.
The second method is to work out 90% of the current year’s liability. So if you have a good idea of your 2011 income tax liability you can use 90% of this figure to settle your preliminary tax obligation. This method is less popular as generally the final 2011 liability will not be known in October, with 2 months of the year still remaining.
Lets take an individual who has been trading for a number of years and their income tax has been calculated as follows:
The 2009 income tax is due for payment on 31 October 2010. This is also the due date for preliminary tax for 2010. For 2010’s preliminary tax we can pay either 100% of the 2009 liability (€1,500) or 90% of the 2010 liability (€4,950). 100% of the 2009 liability is less so that is the minimum amount we should pay. The total paid at 31 October 2010 would be €3,000, being €1,500 for the 2009 liability (assuming no preliminary tax had been paid already for that year) and €1,500 towards 2010.
The balance of the 2010 income tax is due on 31 October 2011, which is also the due date for 2011’s preliminary tax. The balance for 2010 is €4,000, being €5,500 less the €1,500 paid in October 2010. The preliminary tax for 2011 again can be 100% of the 2010 liability (€5,500) or 90% of the 2011 liability (€3,150). As 90% of the 2011 liability is less this is the amount we should pay. The total payable on 31st October 2011 will be €7,150.
Notice of Assessment
Once you have filed your income tax return Revenue will issue you with a notice of assessment. This will reflect the figures you have submitted on your “Form 11” and show Revenue’s calculation of your Income Tax and PRSI for the year under review along with any balance of tax due or refundable.
PRSI and Social Insurance Benefits
Pay Related Social Insurance (PRSI)
PRSI payments go into the Social Insurance Fund which helps pay for Social Welfare benefits and pensions.
‘Reckonable income’ for the purposes of PRSI is profit after capital allowances but before reliefs and deductions. The current rate of PRSI is 4%, which is charged on all reckonable income (including artist exempt income). The current rate is in effect from 1st January 2011. Previously the PRSI rate was 3%.
Using the same example as before, but this time including USC & PRSI:
Income Tax Calculation for 2011 (single person)
|Taxable Profits (from trade)
|32,800 @ 20%||6,560|
|7,200 @ 41%||2,952|
|Less Tax Credit||(1,650)|
|PRSI: 40,000 @ 4%||1,600|
|USC: 10,036 @ 2%||201
|5,980 @ 4%||239|
|23,984 @ 7%||1,679|
|Total Tax, PRSI & USC:
Minimum PRSI Payment
Anyone with self employed income in excess of €5,000 (€3,174 prior to 2011) must pay at least the minimum PRSI of €253. If 4% of their income is greater than €253 then they will be liable for the larger amount. In summary the PRSI liabilities are as follows:
|Taxable income||PRSI payable|
|Less than €5,000||Nil|
|€5,000 – 6,325||€253|
|> €,6325||4% of reckonable income|
Social insurance benefits
There are a wide range of benefits that are available to people who have paid social insurance. Entitlement to these benefits is dependent on a number of conditions other than the social insurance requirements. The payments that are available include:
- Jobseeker’s Benefit
- Illness Benefit
- Maternity Benefit
- Adoptive Benefit
- Health and Safety Benefit
- Invalidity Pension
- Widow’s/Widowers Contributory Pension
- Guardian’s Payment (Contributory)
- State Pension (Contributory)
- State Pension (Transition)
- Bereavement Grant
- Treatment Benefit
- Occupational Injuries Benefit
- Carer’s Benefit
It should be noted that some social welfare benefits are taxable and some are not. A list of benefits and their tax status is available here. The USC is not chargeable on any social welfare payments.
If your income is below €5,000 in 2011 you will not have to pay PRSI, and if this is the case you might want to consider making voluntary contributions. Voluntary contributions allow you to remain insured and therefore entitled to some social welfare benefits. Voluntary contributions cover for long-term benefits, such as pensions. However, the voluntary contributions do not cover short-term benefits such as those for illness, unemployment, maternity, occupational injuries and dental and optical treatment. To become a voluntary contributor, you must complete and return application form VC1 available on the Revenue website VC 1
Artists Tax Exemption
The Artists Tax Exemption Scheme allows earnings made by artists from the sale of original and creative works to be exempt from income tax. It applies to visual artists, composers of music and writers.
The scheme is governed by Section 195 of the Taxes Consolidation Act, 1997. In order to qualify the Revenue Commissioners must make a determination that the works are – a) original; and b) generally recognised as having cultural or artistic merit.
The exemption granted applies only to income derived from the sale of these creative and original works. The Act specifically lists these works as: a book or other writing, a play, a musical composition, a painting or other like picture and a sculpture.
More info on the Artists Tax Exemption Scheme is available on the Revenue website here.
Note that the article makes reference to the High Income Individuals Restriction, which came into effect in 2007. This restricted how much income that artists could claim as tax free. The €250,000 restriction (referred to in article) remained in effect from 2007 – 2009, and in 2010 it was restricted further, to €125,000 and €80,000 under certain circumstances. Note that the High Income Individuals Restriction is not a straightforward “cap” on earnings. A leaflet explaining both treatments and calculations can be found here.
The 2011 Budget announced a further cut to the relief, which now is a straightforward cap at €40,000. Any artist exempt profits above this threshold are taxed as normal.
With the nature of how many artists work and get paid, with lump sum commissions and royalties…etc, they may find that their income fluctuates greatly from year to year. As a result the severe cut of the exemption may hit some artists rather harshly. A solution might be a retrospective “income averaging” exercise available specifically to artists. This would allow artist exempt profits to be “smoothed out” over a number of years in order to utilise fully the exemption thresholds and tax rates/bands.
Accountants for the arts Gaby Smyth & Co. were commissioned in early 2011 to submit a proposal to the Revenue Commissioners that may allow some sort of income averaging treatment. Any developments or decisions made on this proposal can be found here on our website.
Payments to Artists that are Exempt from Income Tax
The following payments are exempt from tax from when they are made to an artist whose has received an Artists Exemption:
- Arts Council bursaries
- Cnuas payments made under the Aosdana Scheme
- Payments from the sale of works that are considered eligible under the Artists Exemption scheme
- Artists’ Resale Right Royalties
How to Apply
To apply for Artists Exemption, you should submit a claim form (Here: www.revenue.ie/en/tax/it/forms/artist2.pdf) to the Revenue Commissioners, together with samples of your work and any supporting documentation that you consider appropriate.
You will need the following samples and supporting documents for the following categories:
- Books or other writing – 1 published copy of the book
- Plays – a copy of the play, together with a production contract
- Musical compositions – CDs or cassettes
- Paintings or other similar pictures- 8/10 photographs or slides, invoices and your CV, if available
- Sculptures – 8/10 photographs or slides, invoices and your CV, if available.
Income Tax Requirements
You must return your Artist Exempt profit figure on your Form 11 income tax return. Note that the only relief available on qualifying artist exempt profits is that of income tax (20% / 41% rate).
PRSI is payable on all income, including your artist exempt income. In 2010 the artist exemption does not extend to the income levy which was in effect in the year. In 2011 The Universal Social Charge (USC) is also payable on artist exempt profits. So for artist exempt profits under €40,000 the rates of deductions would be as follows:
|First €10,036||6% (2% USC + 4% PRSI)|
|Next €5,980||8% (4% USC + 4% PRSI)|
|Next €23,984||11% (7% USC + 4% PRSI)|
These charges are collected as normal through your Form 11 income tax return. An example of how a calculation of income tax, PRSI and USC might look in 2011 for an artist with exempt profits of €90,000 is laid out below:
|Total Artist Profits||€90,000|
|Artist Exempt Profits Restricted||(€40,000)|
|Taxable Portion of Profits||€50,000|
|Taxed: 32,8000 @ 20%||6,560|
|17,200 @ 41%||7,052|
|Less Tax Credit||(1,650)|
|PRSI: 90,000 @ 4%||3,600|
|USC: 10,036 @ 2%||201|
|5,980 @ 4%||239|
|73,984 @ 7%||5,179|
|Total Tax, PRSI & USC||21,181|
Apportioning Artist Exempt Income.
Where you have multiple income streams and not all of them qualify for Artist Exemption then you will need to apportion your profit on a pro-rata basis to get the taxable profit and artist exempt figure.
From the income and expenditure example in the “Preparing Your Accounts” section of this article the tax-exempt artist income was €12,000 and the taxable teaching income was €8,000. Assuming the artist income qualifies for tax exemption we need to apportion the total profit to find the taxable profit for the year. We do this by taking the final profit figure and dividing it by the total income. The result is then multiplied by the total taxable income (in this example the teaching income) This gives us the taxable profit for the year as follows:
|Profit||x Taxable Income = Taxable Profit
|x €8,000 = €5940|
|The tax-exempt portion of the profit is €8,910, calculated as follows:|
|x Tax-exempt Income = Tax-exempt Profit|
|x €12,000 = €8,910|
The taxable profit and the tax-exempt profit will equal the total profit i.e. €5,940 + €8,910 = €14,850
Awards and Grants
There is no uniform treatment for all grants. Most grants & awards are likely to be regarded as taxable income although there are exceptions. Where there is any doubt it is advisable to seek confirmation from the grant provider, the Revenue Commissioners or an accountant.
Some general points to note are:
If you have the Artist’s Tax Exemption then the Arts Councils Bursary Awards and Aosdána Cnuas payments will be exempt from income tax. Bursary Awards and Aosdána Cnuas payments are provided by the Arts Council in order to allow an artist to ‘buy time’ rather than for spend on a defined project. They represent a direct personal income to the artist and they have been officially approved by the Revenue Commissioners as being eligible for exemption from income tax.
Project grants (ie where you are awarded a grant to make a particular project happen rather than the grant being given simply for your own personal benefit) are different and technically they are subject to tax. But remember that only your profits are subject to tax. For the most part a project grant will be offset against the cost of undertaking the project so no profit will arise to be taxed upon. However, there may be occasions where a grant of E1,000 has been awarded for a project but you only spend E700 on carrying out the project. You should be aware that there are tax consequences of having made a ‘profit’ of E300. Similarly if you pay yourself a fee out of the grant then that will be subject to tax too.
So if the income from the award exceeds the actual costs incurred the balance will be taxable. If the expenses to which the grant related exceed the income the additional cost can be claimed against other income in the period.
To ensure compliance you should check the conditions of receiving the grant or award with the awarding body and if in doubt you should take advice from a specialist in this area.
Income arising from a scholarship held by a person receiving full-time instruction is exempt from tax.
Regardless of whether a grant or award is tax exempt or not the artist is required to record receipt of all awards, grants, scholarships and bursaries in their tax returns.
Capital and Revenue Grants
Just as there is capital and revenue expenditure there are capital and revenue grants.
A revenue grant is one that is provided to fund revenue expenditure. For example a grant provided for the purpose of funding a research trip would be a Revenue grant. The income from a Revenue grant is allocated in full to the year it is received and the expenditure to which it relates is directly offset against it.
A capital grant is a grant that is provided for the purpose of capital expenditure e.g. a grant to fund the furnishing of a studio. As the capital expenditure must be claimed at a rate of 12.5% over 8 years as explained earlier in this article, the capital grant is also amortised over the same period.
So let’s assume you have received a grant of €10,000 towards the fit-out of a studio. The total cost of the fit-out came to €16,000. Each year for 8 years you need to record grant income of €1,250 and claim capital allowances of €2,000. This effectively means you are getting a tax deduction of €750 over 8 years which comes to a total of €6,000 being the difference between the actual cost to you and the grant income.
The safest way to deal with grants and awards is to assume that they are taxable until it can be shown that they are not.
Do You Need An Accountant?
An accountant is not a requirement. Revenue will accept returns direct from all members of the public. The main factors you would probably need to consider are:
1. How comfortable you are preparing you own returns
2. The complexity of your return
3. The potential liability if the return is wrong
4. The cost of engaging an accountant
5. The time being taken up by preparing your own returns
6. Are there any other parties that require accountant’s confirmations?
7. General awareness of other business issues.
If you are not sure about your return, but would like to prepare it yourself I would recommend that you contact an accountant with a view to looking over the return once you have prepared it, especially if it is your first tax return. An accountant should be able to quote a reasonable fee for simply reviewing a tax return.
If all of your income qualifies for Artist Exemption then your liability for an incorrect return will probably be relatively small. If for example you don’t claim all your expenses correctly and consequently overstate your profit by €2,000 your additional liability will be a maximum of €280 (14% - 10% top rate USC plus 4% PRSI). This is less than what some accountants might charge for completion of accounts and income tax return for one year.
If your income is not artist exempt and you overstate profit by €2,000 then you might be paying as much as €1,100 (55% - 41% top rate tax, 10% top rate USC plus 4% PRSI) more than you should.
For people in all businesses, including artists, bookkeeping and preparing tax returns isn’t a value adding activity. The time spent doing these tasks is always better employed in the studio. The cost of an accountant should be weighed against the time consumed by doing the work yourself.
There are 3rd parties other than Revenue that may require you to have an accountant from time to time. The most obvious example is your bankers. When looking for loans or mortgages, banks will frequently require an accountant’s certification of your income. Typically they look to certify 3 year’s accounts for mortgages. However this can be often done on an ad-hoc basis.
Finally, an advantage of having an accountant is that they will be aware of other issues that might arise, and with the constant changes to tax laws and exemptions in particular it may be useful to have someone at hand who is up to speed on these issues.
By Gaby Smyth & Company
Gaby Smyth & Company is a chartered accountancy practice located in Ballsbridge, Dublin, which specialises in the music, theatre, film and visual arts. The firm offers taxation, audit and management accounting services. Gaby Smyh has delivered courses in taxation and accounting for Dublin Business School, the Institute of Bankers, AIB Corporate and Treasury, and Goodbody Stockbrokers. In addition, the firm has run courses specialising in accounting and tax in the arts for Music Network, Blackchurch Print Studio, Fire Station Artists Studios, Visual Artists Ireland and various county and city councils throughout the country.