TAXATION FOR ANIMATORS.

There are three ways to work as an animator in the UK. These are freelance, short-term contract and full time.

How to work as a freelance animator.

A large amount of jobs in the animation industry are done on a freelance basis. That is you work for an animation company on one job (a commercial for instance), hand in an invoice at the end of the job and hopefully a few weeks later you get a cheque in the post. You will have to go out and buy an invoice book. Go to a stationers and buy one, they're called invoice books! On the invoice that you hand in write the date, the job that you've worked on, your name and address, your self assessment number (see next paragraph) and the amount that is owed to you.

Another thing to do, when you leave here, is to get a good accountant. Your accountant will get you what used to be called a schedule D-Number, but is now called a Self-Assessment number (this is a number that registers you with a tax office). You could approach your local tax office and get a self-assessment number yourself- just register yourself as a freelance graphic artist (the chances are that you will not only do animation work but also illustration, character design etc).

For more information on Self Assessment Tax look at: http://www.inlandrevenue.gov.uk/sa/

Some employers are reluctant to employ somebody without a self-assessment number. Having a self-assessment number will not hinder your getting a full time PAYE (Pay As You Earn) job. So sort one out as soon as possible.

An accountant will help reduce your tax bill by a huge amount and charge far less than they will save you. Most employers will insist that you give them a self-assessment number before they will employ you! Having a self assessment number means that you are registered to be self employed and that you pay tax at a specific point in the year rather than at source as you would with a PAYE (pay as you earn) job. There are very few PAYE jobs in the animation industry. So it's best to be prepared for a freelance life.

It works like this. If you are working freelance you are known as a sole trader. You are a business to yourself. You sell your services to an employer for a short period of time. In the same way that a plumber comes to your house and unblocks your sink and then you pay them for the work that has been done, you go to an animation studio do the animation work that is required and then are paid for that work when you give your employer an invoice. It's a good idea to try and work for several employers in a year. The money that you are paid has had no tax deducted from it, so at some point you are going to have to pay that tax yourself to the Inland Revenue. This is usually paid twice a year, once in January and once in July. In order for the Inland Revenue to calculate how much tax you should pay, you have to fill in a self-assessment form. I usually get an accountant to fill it in for me because I'm thick and also because if you have an accountant, the Inland Revenue tends to leave you alone. Any legitimate business expense can be deducted from your earnings, thus reducing the amount of money you will be taxed on. So what are legitimate business expenses? Anything you purchase in the pursuit of your business. Paper, pens, pencils, stationary, computers, videotapes, bus and tube tickets, cinema, books, the list is endless. Keep all your receipts! I have one large A4 envelope that I use for a months worth of receipts. Every quarter I write all of these expenses up in a accounts book and at one point in the year (in my case April) I send all 12 envelopes full of receipts, accounts book, bank statements, paying in slips, cheque stubs, visa statements to my accountant with my self assessment form and they do the rest.

You don't have to have an accountant. You can fill in the form and sort all this stuff out with the tax office yourself. As far as I'm concerned, life is to short and complicated enough, so I use an accountant.

The big advantage for doing all this work is this: Lets say I earn £20,000 in a year and I spend £5000 on expenses, I will be taxed on £15,000. That's £20,000 minus £5000 equals £15,000 - the expenses are deducted from my earnings! This means that you pay considerably less Tax that if you are on PAYE!

The idea is to show the taxman that you own all the tools and materials that you need to do your trade, and you use these tools and materials to do your job. You own a light box or computer and work on them in your own studio (or home) or take them to somebody else's studio, to work. In the same way that a plumber comes to your house with his own tools to fix your central heating.

If you buy a computer, that is a legitimate business expense. Paper, pencils, videos, CD's, paint, shelves for your studio, anything that you use to do your job is a business expense and is tax deductible. So keep the receipts!

So when working freelance always put aside at least 25% of your earnings in a bank account that will earn you some interest and use this to pay your tax bill when it comes. Hopefully you will have some money over as well!

You will also need to pay National Insurance. National Insurance pays for your use of the National Health (hospitals etc) and unemployment benefit (or what ever it's called now).

The old fashioned way to pay this is to buy a stamp from the post office every week and stick it into a National Insurance book. When it's full send it to the address below in Newcastle. I think it's about £8.55 a week at the moment. I pay mine by direct debit directly from my bank.

Get information from: Inland Revenue NI Contributions Office. Self-Employment Directorate, Longbenton, Newcastle Upon Tyne. NE98 1YX.

Have a look at; http://www.inlandrevenue.gov.uk/nic/

Being VAT registered.

If you "turn over" more than a certain sum a year (about £58,000) you have to be registered for VAT. (Value. Added. Tax.) This means that you have a VAT number and when you work for an employer you charge them VAT (Currently 17.5%). At the end of every three months you have to add up all this VAT money that you have charged people and sent it to HM Customs and Excise. So if you earn £1000 in a three month period you would have charged your employer £1175 (£1000 + £175 VAT [17.5% of £1000]). You would then send a cheque for £175 to HM Customs and Excise at the end of this three-month period. Having said this, anything that you buy that is a legitimate business expense, you can claim the VAT back on. So if you bought a computer for £1000 + VAT (£175) during this same three month period, you can send a copy of the receipt to the VAT inspector at HM Customs and Excise and you would not have to send a cheque for £175 to them. Yippie! You are now £175 better off. Another way of looking at it is that you saved £175 off the price of a computer!

You can claim back VAT on a lot of things. Any legitimate expense (paper, pencils, life drawing classes, computers, programs etc) and some other bizarre things. The best one being motorcycles! Yes if you buy a brand new motorbike you can claim the VAT back! Fantastic!

Don't even think of not paying National Insurance or Income Tax (or VAT if you ought to be VAT registered). The people who collect this money have nothing better to do that find you and extract money from you, and they will find you!

Have a look at; http://www.hmce.gov.uk/

Short term contracts.

A lot of work is being done this way nowadays. You sign a contract saying that you are going to be working for a certain employer for a certain period of time. At the end of this period of time your employment stops. You get no redundancy pay, nothing. Goodbye!

Short-term contracts are used when it's difficult for an employer to employ somebody on a freelance basis. For example a model animator has to go to a studio and use the employers camera, lights and puppets. A computer animator works at a studio on the employers computer and software. These animators cannot prove that they are using their own equipment. It also happens on longer projects (three months and above).

You usually don't get any holiday rights or sick pay, so you should make sure that your weekly pay packet is slightly bigger to make up.

You pay tax at source (PAYE- Pay As You Earn). That is; your employer takes a proportion of your wages away from your pay packet when you receive it. They also deduct National insurance.

So in some ways it's the worst of all worlds. You pay more tax than a freelance person and you don't have the same employment rights as a full time contract employee.

Full time employment.

A bit like short-term contract employment, but the contract you sign has no definite finishing point. You have more rights for redundancy, sick pay, holiday pay and unfair dismissal.

Strangely enough most employers don't like employing people on full time contracts! The wages are sometimes a bit lower, but there is more job security.

This is also a PAYE job and you do see a hell of a lot of your wage packet disappearing into the Governments coffers every month. More than a third of your wages will be spirited away.

 

Back to Working in animation.