This blog is for you if you are ever considering whether to register your private music studio as a limited company.
Limit your liability
There are many practical good reasons for setting up your own private limited company if you are a music teacher working from home. Though many worry unnecessarily about extra administrative strains, the advantages of separating your work from your individual life are considerable.
By registering and incorporating your business at companies house (www.gov.uk) you are protecting yourself by separating your teaching from your personal life. This literally means limited liability- in other words you will no longer be totally responsible on a personal level for any debts your teaching business may incur. You will be liable only for debts up to the value of what you have invested. You will be structuring your teaching practice in a way that sets up a valuable ‘distance’ between yourself as an individual and your professional work, making you far less vulnerable if anything goes wrong.
Though musicians often find it hard to separate their work from their life as a whole, there is certainly a strong case for doing so when it comes to budgets, accounts, and finances. Of course, registration with HMRC is essential for everyone who runs a teaching practice- we all have to declare our earnings and pay tax! But the separation of your private budget from your company’s accounts, it may be.
If you have a branded name for your company, it instantly signals to the world that you are a business. Of course, having ‘Ltd’ after the name of your teaching practice unquestionably sends strong, professional, well-organised signals to the world at large. It is not going too far to say that it gives a sense of prestige and shows potential new customers that you are confident in your abilities as a teacher too. Because the name of your company is registered, it is protected and will not be used by anyone else.
This will be advantageous when it comes to websites, social media pages, advertisements, and business cards. Though obviously you remain a freelance musician, (with the advantages of being able to decide when you go on holiday, how much you teach etc), having a company name may make it easier for you to advertise and market your skills as a teacher without feeling self-conscious in the process: You have created a potentially useful distance between yourself as an individual and your teaching practice and created a ‘brand’ in the process.
Administration and expenses
Having established a separate bank account for your company, employed the services of a reliable accountant, and registered at companies house, it is important to maintain and monitor expenses and receipts, taking records for future reference- especially for when tax has to be paid. This need not be onerous: Records and paperwork can easily be stored electronically in a cloud-based secure storage system such as Dropbox or google drive. The important thing is to avoid last minute cramming. Set aside a regular period of time each week to put papers in order and take stock of where your finances lie. This will make things much easier for when you have to do your annual bookkeeping submission to companies house via your account.
Tax deductible items
Working as Director for your company may make it easier for you to monitor expenses. It forces you to account for everything you buy as you must justify all purchases set as expenses against the company. If it has direct relevance to your professional life, then it counts as an expense. If you work from home them your accountant will advise you on what percentage of heating and electricity bills you can justifiably claim as business use. The room you teach in and the room you use as a waiting area counts as working space for a home office tax deduction. It is important to know the square footage in terms of space so that you can take advantage of the benefit.
Section 179 of the tax code enables you to deduct, in the year of purchase, the full cost of certain items that have a useful life of more than one year. In other words, items that once had to be depreciated over several years can now be deducted all at once. Qualifying items must be personal property such as musical instruments, business vehicles and equipment, or software. Ask your tax accountant if Section 179 is best for you.
If you travel to teach them it is important to keep a record the mileage you tally up as your drive to lessons. Expenses in the home can be surprising: Though most teachers are aware that they can claim for basic teaching essentials such as sheet music, textbooks, CDs, computer cartridges and so on, there may well be other items that are overlooked. Though most members of society would considered attending concerts to be part of their leisure time, there is no question that for musicians concert tickets are legitimate expenses. If you suffer from a back condition, for instance, then it could be legitimate to claim for the expensive orthopaedic cushion that you bought in order to sit through all your lessons on the chair beside the piano.
Professional Creativity unlimited!
As Director of your own company, you can of course use it for much more than just one to one tuition. Many musicians are muti-talented individuals with a portfolio of contrasted activities that may include lots of performing as well as possibly presenting work, masterclasses, composing and writing. All of these (and more) could fit comfortably under the umbrella of a private limited company. As you expand your activities you could appoint additional directors, some of whom could be family members. But that is beyond the scope of this introductory article. As mentioned earlier, it is important to speak to your accountant. By allowing a formal separation between your activities as a musician and your personal life, greater organisational clarity may well allow for new perspectives on creativity, possibly in collaboration with others.