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Rock Accountancy

Article from Making Music, July 1987

What happens when you start making money from music? Just before you buy the Porsche? You see an accountant, OK?


This money stuff — how do you get it? Helpful though JOHN MORRISH may be, this is beyond even him. But what he can tell you is how people called 'accountants' can advise musicians on what to do with their money when they start getting reasonable amounts of it. Other than spending it.

LET'S FACE IT, rock music and accountancy have not exactly had a long and happy history of co-operation. "You can do anything but lay off of my Schedule D"; "Hey Mr VAT man, sing a song for me...". No, it's no good, they just don't mix.

Still, it's a sad truth that money niggles have destroyed more bands than artistic differences ever did. And then there's the great rock 'n' roll ripoff, a legendary industry that is no doubt with us to this day. In today's Thatcherite music business climate, however, you don't hear people complaining like they used to. Glad to have a gig at all.

The sad truth is that over the years many bands have gone, like lambs to the slaughter, into the hands of people with a serious interest in money: other people's money. Consider for a moment that band of the moment, the Beatles. They got ripped off in every conceivable direction.

For instance, they were conned into giving away the merchandising rights for all their spin-off products, a considerable industry in its own right. Brian Epstein and his lawyer gave 90 per cent of the income from the Beatle wigs, Beatle guitars and all the rest to a man whose parties they enjoyed. A moment's research would have revealed that Elvis Presley goods brought in $20m in 1957 alone.

All of which brings me back to the main point (hurray! — combined staff and readers). While the likes of you and I were learning our fourth chord, plenty of other people were learning about double-entry bookkeeping.

I consulted Dorking-based accountant John Bradney, a man who spends a fair amount of time dealing with the problems of what he quaintly calls "entertainers". What can a poor band do?

"The message is that they must go and see somebody. First and foremost, without exceptions, all entertainers concentrate on developing their careers, with no money coming in at all. Then a little bit of money crops up and they think 'marvellous' and pop down the pub. And then two years later this builds into a torrent, they think 'marvellous' and spend it.

"And then they get a letter from the Revenue, at which time all the planning possibilities have disappeared."

Ah yes, planning. Now everyone I know does a bit of planning, even if it's just shoving the odd fiver under the mattress for the holidays. I like to plan weird new musical hybrids that are going to sweep the world, like jazz-funk-Bulgarian singing. That's not what he means. He means making financial decisions now that will see you all right when the inevitable happens and the Inland Revenue come gunning for you.

If you've still got your day-job, your problems are necessarily limited. You get a tax form and you put your extra earnings in the slot marked Trade Profession or Vocation — minus, of course, the expenses you spend in performing: transport, publicity, instrument hire, a proportion of capital outlay on the Fairlight III, that kind of thing. But if you go out into the mean streets as a full-time musician, this looms much larger.

"The question I get asked more often than anything else is 'Should I form a company?' and the answer to that is, I regret, complicated," says Mr Bradney.

"What people ought to do, and this is a generalisation, is start as a sole trader." I would add that a sole trader is not a person who sells fish, but any self-employed person operating on their own, for instance a travelling knife grinder, a freelance journalist like yours truly, or even a one-person fish dealing business.

Mr Bradney delves deeper into the obscurities of the tax system: "In the first three years they will be assessed (for taxation purposes) on how well they did in the first 12 months. If they have a low 12 months, which they all do, then they will be assessed upon that." So far so good. You're one step ahead. Later, as your profits rise, you should pack in the sole trading and make yourself into a company. Depending on exactly when you decide your financial year and when you decide to close the company, you can extract several months' high level profit at a low level of tax assessment. Nice.



Accountant: "My advice to anyone who is starting is to make sure you've got an accountant you can talk to, and then make arrangements to go and see him when it looks remotely as if you might be about to start making some money."


Of course, setting up a company is an expensive thing to do in itself. I know you can buy them off the shelf for £100 or so, but you have to pay the cost of running them. The law demands audited accounts every year, and that's going to cost significantly more than the cost of initial formation. Basically, you need to be earning more than £25,000 — and if you're doing that, you're reading the wrong mag.

Still, let's be bold. Why a company, Mr Bradney? "You can then pay yourself a dividend, because that way you avoid the National Insurance charge, which is very important.

"We look at that, and we look at the national insurance, and then we create a self-administered pension scheme where we take out profits from the company and put them tax-free into the pension scheme.

"The other advantage of the company is that it can pay the individual a salary and the salary can be at a regular level, irrespective of what his earnings are.

"The problem with performers is that they have one year when they earn £1m and the next year they earn £10,000. If you put that into the company, each year will be assessed at corporation tax rate, which for argument's sake I'm going to call 30 per cent (I know it isn't). Then it sits there and you don't get taxed at the highest rate."

The advantage of all this is that you can average out your very up and down rock 'n' roll income. But what about that famous rock 'n' roll institution, the group?

"The same rules apply for groups as for individuals. The group will produce accounts on a self employed basis, which they are, and one year of the assessment will drop out again. They all share the assessment. It's sometimes easier to see it as a single individual because exactly the same rules apply.

Frankly, nobody should be getting into this without some expert advice. That's what Mr Bradney says: "Most accountants are delighted to see a performer and have a half-hour chat with them when they are starting, so that they can say 'This is what you ought to do, so that when you have a profitable single or whatever and you can afford to come back and pay to see me properly (this one's on the house) this is where you come and this is what you should be looking for.'

"My advice to anyone who is starting is to make sure you've got an accountant you can talk to, and then make arrangements to go and see him when it looks remotely as if you might be about to start making some money."

Every would-be rock star in the world is keen on making records. Keeping records, of a financial nature, is something quite different. You need details of what you spend and the income you receive. You can't make it up at the end of the year. You're not in the City of London yet. I have a little cash book from W H Smith. I don't actually use it, but I mean to. My real system bears much more resemblance to one Mr Bradney mentioned.

"Of course, they must keep records, even if they put the bills into a plastic Sainsbury's bag. Do at least keep them. If they keep them and they earn some money, then we can find some expenses, we can add them all up and create something. But it's impossible if people have thrown them all away.

"Some of the records I see are... interesting... unreal, but if they make an effort they've got something. If you don't give the accountant anything at all he can't help you but if you give him what you've got he can sort out what's allowable."

So that's it then. Remember, get expert advice and then you'll be absolutely safe... until your accountant rips you off. Now, how did that song go? Oh, yeah, "Imagine no possessions..."


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Letters/PPP

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Publisher: Making Music - Track Record Publishing Ltd, Nexus Media Ltd.

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Making Music - Jul 1987

Previous article in this issue:

> Letters/PPP

Next article in this issue:

> Do The Hüsker


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