Sole trader or limited company
Most careers start as self-employment: simple, cheap, losses usable, and the right answer at modest profit levels. The company conversation starts when profits climb and stay there: a company allows profit retention at corporation-tax rates, timing of personal extraction as salary and dividends, and cleaner contracting with labels and promoters.
The company is not a trick; it is a trade-off. Running costs, payroll, accounts and the discipline of not treating the company's bank account as personal money all land on the client. And moving existing deals and rights into a company has its own tax consequences that need planning, not improvising. Decide on trajectory, not on one good year.
What counts as an expense: the judgement calls
The deductibility rule for the self-employed is that spending must be wholly and exclusively for the trade, and music careers generate the classic hard cases: instruments and gear (capital allowances), home studios (use-of-home apportionment), stage clothing (fine; everyday wardrobe: no), touring travel and subsistence, and the perennial grey areas around image, fitness and appearance.
The workable discipline is documentation plus consistency: a defensible apportionment policy for mixed-use costs, applied the same way every year, with records that show the thinking. Aggressive one-off claims cost more in enquiry risk than they save in tax.
VAT: the threshold ambush
VAT catches musicians because performance fees, merch and some royalty flows count towards the registration threshold, and a good year can cross it mid-tour. Registration then adds VAT to invoices (fine for business customers, painful for direct-to-fan sales) and opens input VAT recovery on the substantial costs of touring and recording.
The advising discipline is monitoring: track rolling turnover against the current threshold, decide registration before a tour rather than during one, and treat the flat-rate scheme and voluntary registration as modelling questions. Cross-border services add place-of-supply rules that need checking per engagement type.
Foreign income and withholding
International touring and royalties arrive with tax already taken: many countries tax performers' income at source under the artiste provisions of tax treaties, and some royalty flows carry withholding too. That tax is not lost, but recovering it takes paperwork: reduced-rate applications before the income where available, and foreign tax credit claims in the UK return where not.
The failure mode is administrative: certificates not collected at settlement, credits never claimed, and double tax quietly paid. Build withholding evidence into the touring workflow and reconcile foreign credits annually; over a touring career the sums are material.
- Reserve discipline beats everything: set aside tax and VAT percentages the month income lands, in a separate account.
- Payments on account surprise every newly profitable client; forecast them before the first big year, not after.
- Loan-out and holding structures for IP are planning tools for the established, not defaults for the emerging.
Figures referred to
- Where the current rates liveIllustrative
- Income tax bands, NI, corporation tax, dividend rates and the VAT threshold all move by Budget; model against current HMRC figuresHMRC published rates and thresholds · as of 2025
Figures marked Illustrative show the shape of the market, not a quoted rate. The lessons keep the maintained, sourced numbers.
Common questions
Should a musician set up a limited company?
Only once profits are consistently high enough that corporation-tax retention and flexible extraction beat self-employment simplicity, judged against current rates and the real running costs. It is a trajectory decision; one good year is not a trajectory.
Can musicians claim instruments and studio gear against tax?
Yes, as capital allowances where used for the trade, with apportionment for personal use. The general test for running costs is wholly-and-exclusively for the trade: stage wear and touring costs generally qualify; everyday clothing and mixed-use spending need a defensible, consistently applied apportionment.
Why was tax deducted from my foreign gig fees, and can I get it back?
Most treaties let the performance country tax artists' income at source, so promoters withhold and remit locally. Relief comes through reduced-rate applications before the event where available, or foreign tax credits in your UK return, and both require the withholding certificates from each settlement.
Learn this properly
The interactive lessons on this topic, with sourced figures and live simulators: