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Tax and National Insurance

Basic Information on Tax

On this page you will find information about:

  • Tax and National Insurance for employees
  • Tax and National Insurance for the self-employed

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 by using your PAYE Coding Notice. HMRC issues notices to employers to adjust the level of tax paid for any benefits you may receive, higher rate 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% on income between the lower limit of £8,632 and the upper limit of £50,024. An additional 2% is payable on all salary above £50,024. (2019/2020 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 on the 31 January following the end of the tax year, e.g. 31 January 2021, for the year ended 5 April 2020, 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 and HMRC is very strict on what expenditure does qualify. 

— In certain circumstances, commission paid to an agent is deductible for employees. You may wish to seek professional advice. 

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 have to pay Class 2 and Class 4 contributions on self-employed income, subject to profit levels. This means: 

— Telling 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. Registration can be done online at gov.uk/new-businessregister-for-tax 

— Reporting all your income to the tax office each year so that they can assess the tax due on it. Once you have registered, HMRC will send you a tax return each year. 

— Paying the tax: 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. If so, government will need to contact Jobcentre Plus. The Class 2 rate is £3 per week. The small earnings exemption can be granted to self-employed people who have an income below the low earnings threshold of £6,365. However, they may wish to continue making the contributions in order to preserve their state benefit entitlements. 

— The Class 4 contribution is currently levied at a rate of 9% on self-employed profits between £8,632 and £50,000 per annum, with an additional 2% payable on all profits above £50,000. It is assessed as part of the tax calculation and paid in the same way, at the same times. It does not increase or 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. 

Being self-employed also affects:

— Your entitlement to Social Security benefits, such as unemployment benefit.

— Other rights and duties, e.g. under the Employment Protection Acts.

— Your liabilities to the public for the work you do.

You can find more information about self-employment in an HMRC booklet entitled ‘SE1 Thinking of Working For Yourself?’ (online pdf document) which you can get free from any tax office or download online.