If we’re honest, tax and accountancy are about as far from the business of creativity as it’s possible to get.
And the thrill of completing a self-assessment tax return or wading through corporation tax guidance on the HMRC website certainly isn’t why most people study design or video production at university.
In fact, our two worlds are so far apart that the very word ‘creative’ is practically taboo among accountants, being a synonym for ‘cooking the books’.
Unfortunately, the Revenue doesn’t care about any of that – it expects tax returns on time, and accurate, regardless of the sector you operate in. “But I’m not a numbers person!” doesn’t wash.
Depending on the specific creative sector you’re in, the chances are that your year has its own ebbs and flows.
A lot of photographers get busy in the summer, for example, and if you’re in events management, summer and Christmas can be really frantic.
I gather from talking to clients that TV production is busy all year round at the moment – the age of ‘peak TV’ – but even so there’s a bump during spring and summer as people chase the light and hope to dodge the rain.
For accountants, the pinch points are around the self-assessment deadline for individual taxpayers at the end of January and again in the spring when most companies file accounts and their corporation tax return.
Your self-assessment return for the 2018/19 tax year is due no later than midnight on 31 January 2020. In practice, though, there’s no reason you shouldn’t have it done before summer’s over.
That’s what Alchemy always aims to do for its clients, at any rate – why have it hanging over you for a whole year?
The deadline for your company accounts and corporation tax return will depend on your accounting period – your business’s financial year, essentially.
For pragmatic reasons, though, most companies try to sync their year-end with the end of one official tax year and the start of the next, around the beginning of April.
Media businesses eligible for any of the eight creative tax reliefs for creative industries will want to include this in their corporation tax return.
Creative industry tax relief
If you run a film production company and want to apply for tax relief, you’ll have to demonstrate that your film actually is British according to a cultural test administered by the British Film Institute (BFI), or that it is a bona fide international co-production.
About 2,000 films were certified as British between 2008 and 2017, according to the latest stats, including Star Wars: the Force Awakens and the James Bond film Skyfall. In the same stretch, HMRC paid out about £2.3 billion in film tax relief.
When it comes to TV, productions have to prove they’re ‘high-end’ (drama, comedy, documentary) as opposed to reality television, advertorial or for training videos. In other words, the Government wants to promote more Peaky Blinders and Downton Abbey and a bit less The Only Way is Lancashire or Made in Preston.
As an aside, the rules for museums and galleries exhibitions tax relief state that an exhibition is ineligible for relief if “anything displayed is alive”. Fair enough.
The other tax reliefs available cover the video game industry, children’s television, animation, theatres and orchestras – areas in which the UK has a strong track record thanks to companies such as Rockstar Games and Aardman.
The IR35 problem
Another key bit of tax law that affects creative industries especially is IR35.
Introduced almost 20 years ago, the idea behind it is to reduce the instance of ‘concealed employment’. That is, people gaining a tax benefit by going self-employed via a limited company but then being contracted to do the same kind of work, at the same desk, with the same kit.
Most of the high-profile IR35 cases are from the world of media and HMRC seems particularly obsessed with TV presenters, many of whom left full-time jobs with the BBC or ITV to work through personal service companies (PSCs). You might have seen this story about Lorraine Kelly, for example, in March 2019.
To prove you’re not secretly employed – that you really are a contractor – there are three tests you need to pass:
- Personal service – could you send someone else with equivalent skills to do your job if you couldn’t make it to the studio or agency for some reason?
- Control – if you’re a genuine contractor, the idea goes, then you should be able to complete the work required using the tools you think best, with hours that suit you.
- Mutuality of obligation – can you say ‘no’ when the engager offers you a job? And can they send you away if there’s nothing that needs doing?
IR35 is unpopular and controversial, making life difficult for contractors and, its critics argue, not being all that effective anyway.
Still, it’s about the get worse again with the introduction of changes which will make it the responsibility of the contracting company to certify the employment status of contractors. This has been the case in the public sector and is now being extended to the private sector, from April 2020.
What that means in practice is that if you’re a creative firm that uses contractors employed through PSCs – either as on-screen talent or for their specialist skills, such as Steadicam operators – you’ll have an additional responsibility.
And if you’re a creative contractor yourself, be prepared for additional scrutiny and bureaucracy from the businesses that buy in your services. You might also find increased pressure to work through an umbrella company – easier in some ways but often less lucrative.
Get in touch
There’s plenty more to take into account when it comes to tax for creative and media businesses, from the implications of Making Tax Digital to cloud accounting software.
To talk about how Alchemy’s process-driven tax services can help free up creative capacity for you, give us a call or drop us an email.