Tax and National Insurance Guide

How taxes work for employed musicians

If you are employed, your employer is responsible for deducting income tax and national insurance from your salary via the PAYE system. Your employer then pays this over to HMRC on your behalf.

• The amount of income tax deducted from your salary is determined using your PAYE coding notice. HMRC issues notices to employers to adjust the level of tax paid for any benefits you may receive, any higher rates of tax due on other income you receive and any relief for deductions, such as making pension payments.
• Class 1 national insurance will be deducted from your salary at a rate of 12% if you are on an income between the lower limit of £1,048 per month and the upper limit of £4,189 per month. 2% is payable on all salaries above £4,189 per month (2023/2024 rates). 
• You can no longer ‘opt out’ of the State Second Pension to pay a lower rate of national insurance.
• You may still be required to complete a tax return if your total taxable income is above the higher rate threshold and you have other income, such as bank interest or dividends. Any additional tax due would be payable by 31 January following the end of the tax year (e.g. 31 January 2023 for the tax year that ended on 5 April 2022) with the tax return also due for filing by this date.
• As an employee, you can only claim expenses against your income that are wholly, exclusively and necessarily incurred in the duties of employment. HMRC is generally very strict regarding what expenditure qualifies.
• In certain circumstances, commission paid to an agent is deductible for employees. You may wish to seek professional advice on this.

How taxes work for self-employed musicians

If you are self-employed, you are responsible for your own tax and national insurance. Even if you are paying Class 1 contributions as an employee, you are required to pay Class 2 and Class 4 contributions on self-employed income subject to profit levels. You should be aware of the following:

• You need to tell your local tax and social security offices you are in business by registering as self-employed. Failure to do so incurs a penalty, based on the contributions missed and the reasons for registering late.
• You are required to report all your income to the tax office each year so they can assess the tax due on it. Once you have registered, HMRC will send you a tax return each year.
• For the first tax year in which you become self-employed, you will not usually have to pay the tax due on profits until 31 January following the end of that year. Subsequently, you will then normally pay it in two instalments, on 31 January and 31 July of each year.
• Paying Class 2 national insurance contributions as a self-employed person is now done under self-assessment. However, as a result of this change, you may need to accelerate payments to claim some benefits (maternity allowance, for example). The Class 2 rate is £3.45 per week.
• The small earnings exemption can be granted to self-employed people who have an income below the small profits threshold of £6,725 in the 2023/24 tax year. However, they may wish to continue making contributions to preserve their state benefit entitlements.
• The Class 4 contribution is currently levied at a rate of 9% on self-employed profits between £12,570 and £50,270 per annum, with an additional 2% payable on all profits above £50,270. It's assessed as part of the tax calculation and paid in the same way, on the same deadlines. It does not affect entitlements in any way. However, it may be deferred or exempted if you also have substantial employment income or are beyond state retirement age.

You can find more information about self-employment from HMRC.

Does tax apply to hobby musicians in the UK?

If you started performing as a hobby musician in the UK but you are now earning off the back of this, you may need to declare yourself as self-employed to HMRC. As soon as you start to make any money from your musical endeavours, you should start keeping a record of all income and expenses. Once you generate over £1,000 per year, you need to declare this to HMRC.

What can musicians claim back on tax?

Your tax bill will be lower if you accurately declare all your expenses, meaning it is just as important to record your outgoings as it is your income.

The money you spend toward your business is not classed as profit and therefore is not taxable.

For this reason, you should familiarise yourself with an exhaustive list of items that musicians can write off before you submit your tax return to HMRC. These include but are not limited to:

• Instrument insurance and repairs
• Cleaning materials for your instruments
• Interest paid on a loan to purchase an item for your business
• Advertising costs
• Hire costs for rehearsal rooms and studios