What follows below is Rachel’s account of a trip she made to Belgium a couple of years ago with some tax questions that it raised for her. We have then answered these questions for Rachel but in a way that we hope will benefit all musicians who have an uncomfortable relationship with HMRC (otherwise known as The Revenue!). Find out more about Rachel and her music here
I was over in Belgium last week with the Rachel Hair Trio playing a set as part of the “Gaelic Crossroads” concert in Lommel, near the Dutch Border. What a trip….we were so well looked after and the gig was almost a sell-out.
We received a good fee for the trip on top of all our expenses (flights, accommodation, transfers) being covered so financially, as well as musically, the trip was a great success.
As usual we, or rather I on behalf of the trio, got paid in Euros, having invoiced my agent who then in turn invoiced the promoter with his fee on top of ours (how much we pay our agent may be the subject of a future piece!)
Since I am the financial brains of the organisation (difficult to believe I know) it’s normally me who gets paid and then I pay the other pair, normally emailing them an official “receipt” (if that’s the right term) to confirm that I’ve paid them for the stated gigs. If work is done in the UK I normally pay them by BACS from my own account, but more often than not if we work outside the UK we get paid in cash, so I pay them cash.
Right now the euro is very strong against the pound so we really appreciate getting paid in Euros. The race is then on between the three of us to try and find the best buy-back exchange rate. Once I’ve exchanged the Euros I keep the bureau de change receipt stating what the exchange rate was so I can add my fee in pounds into my accounts.
When travelling we ate while at the airport on the return journey in Brussels, and I kept the receipt for this having paid in Euros. When putting it into my accounts I normally would take the final exchange rate that I got for changing my fee when back in the UK and work out what I spent in pounds, putting that amount into my account.
However on occasions I’ve used my credit card and then looked at my bank statement for what their exchange rate was and put that in, when paying my card.
So here are my questions from last week:
Is it okay to work with exchange rates at the time we get back or should I look for rates on a specific date, or historically?
Do I need to make a note in my accounts of exchange rates each time we change money, or is the receipt enough evidence?
Should I be putting a note of the Euros I got paid as well in notes to my accounts?
What happens if we are investigated and HMRC discover that we have been paid different amounts for the same gig because we all got different exchange rates when we changed money?
Moneysucks? spoke to Chartered Accountant Abercrombie Gemmell and asked them for their take on Rachel’s issues. We agreed, first of all, that Rachel has done a good job in the way she deals with the other members of her trio. Too often we hear of musicians who get paid for work and pass out cash to the others involved without any paperwork changing hands.This leads to confusion and can cause issues with HMRC since, if we take the situation Rachel described above, in the absence of receipts showing that Rachel has paid the other members of her band then HMRC could think that all of the money paid to Rachel by her agent was her income, and tax it accordingly.
Abercrombie Gemmell think that the most important thing for Rachel to do in her dealings with the revenue is to create a clear paper-trail for them to understand. “In Rachel’s circumstances, the key consideration will be to keep sufficient records to tie in the actual exchange rate when preparing her tax return. I would have thought that simply retaining the paperwork from the Bureau de Change would be sufficient. At this level, I would not overcomplicate matters by worrying about notes in your accounts regarding the rates.”
In terms of the exchange rate differing day to day, Abercrombie Gemmell reckons this is not really a problem as long as Rachel’s paperwork confirms the amount she received but says that help is available on this issue. “HM Revenue & Customs publish monthly lists of the official exchange rates for use in preparing tax returns, and these can be found at http://www.hmrc.gov.uk/exrate.”
They are not too worried about any variation in amounts paid to different members of Rachel’s trio. “Similarly, it is less important to marry up exchange rates between the band members, provided that the amounts are being returned to HMRC in accordance with the actual amounts received on exchanging the Euros on your return to the UK.”
So all in all it looks as though Rachel has grasped the basics of this issue and if she takes the accountant’s advice on board her tax return should be easier to complete next year.
Abercrombie Gemmell did raise one other important issue that is relevant to musicians, and others, working abroad. “One consideration that should not be overlooked is the potential taxability of these earnings in the relevant European jurisdiction. Strictly, I would expect you to be liable to Belgian tax in relation to your activities there.”
This raises the spectre of the ‘double taxation agreement’ and the need to understand where tax is due to be paid when you work overseas. We’ll come back and look at this one in more detail next time!
For the record, since this post first appeared Abercrombie Gemmell have merged with Glasgow accountants French Duncan.