AIR

Chancellor George Osborne announces emergency budget - but how will it affect artists and the self-employed?

The public sector is set to shoulder the responsibility for economic recovery after Chancellor George Osborne's 'unavoidable' emergency budget was announced on 22 June. Staff who earn more than £21,000 a year are faced with a two-year pay freeze, whilst most government departments could face cuts of up to 40%.

Setting out his plans in the Commons, Mr Osborne said "decisive" action was needed to prevent a "catastrophic collapse" in economic confidence. However he stressed it would be done in a "fair" way with the better-off shouldering most of the burden.

However, the loophole in capital gains tax remains, effectively giving the rich what they wanted. The 250,000 people who pay it will be happy the figure remains at 28%, whilst bankers even escaped a severe tax on their bonuses. As the Guardian's Polly Toynbee commented "the £2bn bank levy hurts none of their wallets. "Fairness" repeated over and over will not make it so."

The key points at a glance are:

• VAT increase to 20%
• Tax cut for lowest paid
• Child benefits frozen
• Disability Living Allowance cut
• Two year council tax freeze
• Capital Gains tax increase
• Bank levy
• NI tax holiday for job creation outside South-East of England

Osborne said: "Everyone will pay something but the people at the bottom of the income scale will pay proportionately less than those at the top. This is a progressive Budget."

The word progressive never sounded so hollow. Osborne's budget is formulaic Tory, with unfair VAT rises and a snub to fair income tax. In essence it will hit the poorest people in the poorest regions hardest. Professor Ruth Lister commented: "How much more will the poor and powerless be expected to pay for a crisis created by the rich and powerful?"

How will the budget affect artists?

Increase in VAT

The increase in VAT basically means you will have to pay more for things like materials, equipment, computers and travel. As an example let's use Jackson's Art Supplies. A 38ml tube of Daler Rowney cadmium red oil paint currently costs £8.95. As of January 2011 it will cost £9.14 - an increase of 19p. Now this might not sound like a huge amount but multiply it over the course of a year and you can quickly see the impact the increase of 2.5% on VAT will have on your bank balance.

Income tax changes

The personal allowance on income tax is to be increased next April by £1,000 to £7,475. This is good news if you are self-employed and a low earner, and off-shoots the impact of the hike in VAT. Remember, income tax is only due on taxable income that's above your tax-free allowance.

Your profit is all of your income (from your sales invoices) minus all your expenses (from your receipts). In some cases, your profit can be much lower than your actual sales (since you may have lots of expenses). Keep a record of all the costs associated with running your business, and these should be included when filling out your tax return at the end of the year.

So in theory the changes to income tax are a good thing for artists who are lower earners, but they need to be careful regarding the rise in VAT. Your expenses will be no doubt rise and therefore keeping a record of what you are spending, and including these in your tax return, is imperative.

For higher income earners the starting point for paying higher rate income tax will be lowered from its current £37,000 to claw-back the benefit of the extra personal allowance - which in theory is designed so that the rich pay more. However, the chancellor did not specify a date when this will begin.

Tax credits and state benefits changes

Benefits, tax credits and public service pensions will be uprated each year in line with the consumer prices index, not the often higher retail prices index. At present tax credits are paid to families whose household income is less than £16,190 a year, and a lower rate for households with under £50,000.

In future credits will be paid at the same rate for those earning £16,190 a year, and a reduced rate for those earning between that amount and £40,000.

Changes to National Insurance

The rates of National Insurance contributions (NICs) will increase by 0.5% from April 2011 in addition to the 0.5% announced in 2008.

However, if you are registered as self-employed you should already be paying Class 2 National Insurance (£2.40 per week). This will stay the same. Furthermore, if your total income is less than £5,075 per year you can apply for a certificate of small earnings exception and not pay this amount. This figure is £570 above the previous level.

Key facts

• 72% of artists are self-employed and as such have been given no specific support in the recession as 'sole traders' and 'small businesses.'
• 1 in 6 posts in universities are due to go and we know that universities are the 'top employers' of artists.
• The value of openly offered paid work in the arts has dropped by 27% in the last twelve months when looked at against pre-recession (2007) data.
• Artists' long-term approach to career development means they are in effect 'social enterprises' mixing and matching resources and creatively seeking ways to finance and develop the application of their ideas and social relationships and thus small amounts of funding are well invested in artists.
• Surveys have shown that any income that artists make is largely returned into the communities in which they are located and thus automatically contributes to local sustainability.

For more information on how the budget will affect you click here »

Read Arts Professional's report on arts sector employment  here »

Jack Hutchinson

First published: a-n.co.uk July 2010