Paying Musician's VAT Rates and Income Tax in the UK and EU

Registration for VAT can be compulsory or voluntary. Once registered, you can then claim back the VAT which you are charged on things like telephones, instruments, etc, that are used in your business, but it means that you will also have to charge VAT on your fee for every gig, arrangement, etc, and handle all of the considerable bookwork involved. 

It is wise to first consult an accountant, who will examine and explain the benefits and pitfalls of VAT Registration and the accounting system to be employed. 

Beware of the implications of Scale Charges for motoring costs if you reclaim VAT on petrol. 

Making Tax Digital for VAT 

Making Tax Digital (MTD) for VAT was introduced with effect from VAT periods which began after 1 April 2019. This requires all VAT registered persons with a taxable turnover in excess of £85,000 to submit MTD compliant VAT returns via a new API link. In practice, most small businesses are using bridging software to meet this requirement rather than maintaining digital VAT records. 

Any business that is VAT registered and has a taxable turnover of less than £85,000 does not need to sign up for MTD at this stage. 

VAT Flat Rate Scheme

This scheme is for businesses, individuals etc with an annual vatable turnover of £150,000 or less and allows for a simplification of the calculations required so that VAT liability can be determined as a percentage of turnover. It can be beneficial for small businesses. However, the Flat Rate Scheme percentages increased with effect from 1 April 2017 and the scheme is less beneficial thereafter. 

Registration for VAT can be compulsory or voluntary

Voluntary 

As a musician, provided that you are making supplies of services by way of business in the UK, then that is sufficient to register for VAT in the UK on a voluntary basis, even if your income is only a few thousand pounds. 

Compulsory 

If VATable income exceeds the current VAT registration threshold of £85,000 (with effect from 1 April 2017) in any 12-month period or less, VAT registration is compulsory. It should be noted that failure to notify HMRC of a compulsory requirement to register for VAT may result in a late registration penalty. 

However, if your income is subject to major fluctuations and only exceeds the threshold for a short period, it is possible to arrange not to have to register for VAT. To do this, you must notify HMRC of the breach of threshold and obtain its agreement.

Once VAT registration is achieved, VAT will become chargeable at 20% on all VATable business supplies made in the UK. 

There are, however, some specific rules for supplies made outside of the UK.