Modelling is a purely glamourous profession, right? Trips to London, Paris and Milan, free clothes, mixing with the great and the good at late night parties, and getting paid to do so. Whether all of that is true, I will leave to the fashion agents to tell you, but I can certainly point out some of the downsides of the business and taxation for a model.
Most young models won’t earn very much to begin with; it might take time before they have the reputation to attract lucrative contracts with major brands and fashion houses. However, unlike other emerging professionals, who might be on PAYE, models, as self-employed individuals, also have the added complication of handling their own tax return.
For some, the added compliance of filing a tax return is a minor inconvenience and, contrary to the erroneous stereotype, most models I have worked with are more than capable of attending to this. Nonetheless, there is always the risk they:
- Claim too much in the way of expenses, risking an HMRC enquiry and an unwelcome tax bill;
- Claim too little and paying too much tax; or
- Simply not know specific rules that might affect them.
For example, I have clients asking whether they can claim their gym membership on their tax return (normally they tell me their modelling friends make such claims). As with most thing in life – it depends – but I often dissuade clients of making this sort of claim as it is not without risk.
The simple rule is expenses must be “wholly and exclusively” for the business. They then normally say “I only go to the gym to stay fit”, which is often (somewhat crazily) an actual contractual requirement for models. However, the main issue with fitness is that no matter what you do, there will be a personal benefit as you use your body all day, every day. This is what is known as “duality of purpose”, i.e. the expense is incurred for both business and personal purposes. HMRC do allow you to claim the business element of an expense but only where it is clearly separable from the personal element. Unfortunately, it is not clear how you separate personal gym-time from business gym-time. Can the first ten minutes on a treadmill be for business and the next ten minutes be for personal? I am afraid not. However, that said, HMRC has been known to allow a percentage of such expenses by dispensation, but there is no way of knowing what an acceptable percentage is until HMRC investigate the tax returns, and then it depends on the mood of the individual inspector.
Other taxpayers will err on the side of caution. After I start working with them, they tell me they did not want to risk claiming too much and incurring HMRC’s wrath, so instead they claimed too few expenses and paid too much in tax. They might not be claiming their travel costs to attend shoots or visit their agent. Perhaps they do not claim their subscriptions to their various fashion magazines, which give them an idea of the latest industry trends. Often, all they are claiming are the direct expenses being withheld by their agent as shown on their statements. It might just be that the cost of hiring an accountant can be justified with the amount of tax being saved.
All the above can affect most taxpayers, but models, unlike other taxpayers, are often pulled into international tax much earlier into their careers. Newcomers to the industry can still be seen on runway shows at European fashion weeks or at overseas shoots for brands. This then poses all manner of additional headaches for a tax return, but an even bigger risk – double taxation. Here the risk is the model is paying tax twice on the same income – once in the country where the work was performed and a second time in the UK. What is worse, often foreign taxes are withheld on the gross amount of income, so the effective rate of tax is higher.
Double taxation can be avoided, but you need to tread carefully, and you ideally need an expert’s support. It is not as simple as accepting the foreign tax on the income from then deducting this tax from your UK tax liability. HMRC will only accept a foreign tax credit if the foreign tax has been reduced to the lowest levels under the relevant tax treaty between the UK and the other country. The right to reduce tax in the foreign country will depend on the nature of the work performed and there is likely going to be several forms to complete to satisfy both HMRC and the foreign tax authority before payments are made without tax being withheld or reduced.
For example, say you do a shoot in Milan with an Italian fashion brand. The brand will be required under Italian law to withhold taxes unless they, and in turn, the Italian tax authorities, are satisfied the income is not taxable in Italy. This might require obtaining a certificate of residence from HMRC, and, in some case, their stamps on Italian tax forms. In the meantime, the brand might only release the funds net of tax, or worse, not pay anything until they receive the relevant supporting documents. This can be detrimental on cash flow while you wait on the forms.
Finally, a parting gift in this discussion – beware the “gifts” from brands when you are providing services. Just because you do not receive cash does not mean there is no taxable income. If as part of the shoot you given a pair of shoes that are worth £500, HMRC will expect you to pay tax on the value of that “gift”. Ultimately they see the shoes as part of the fee you received for performing the service.
So, while there are glamourous aspects of modelling, there are pitfalls to be aware of. In particular, the international aspects of a model’s career can cause many issues and can be financially detrimental. I always recommend reaching out to an accountant familiar with such issues if you encounter them.
If you want to discuss any of the above, or any other matter, just give us a call on 020 7183 3383 or email info@kma-spotlight.com.
