7 Financial Hacks to Build Wealth as an Entertainer or Creative

Managing money as a creative or entertainer can feel like juggling flaming torches while riding a unicycle—exciting, but nerve-wracking. Whether you’re a performer, artist, musician, athlete, or designer, your income might be unpredictable, and the thought of tackling taxes or planning for the future might seem overwhelming.

Here’s the good news: building wealth as a creative doesn’t have to be daunting. With a few smart strategies (and maybe a strong cup of coffee or tea), you can take control of your finances, achieve your goals, and still have plenty of time to focus on what you love—creating, performing, and entertaining.

Ready to turn your passion into financial stability? Let’s dive into these seven actionable financial hacks designed just for you.

1. Choosing the Right Business Structure

The way you set up your business—whether as a sole trader, partnership, or limited company—can have a significant impact on your tax obligations, personal liability, and even how potential clients perceive your business. Selecting the right structure is not a one-size-fits-all decision; it depends on factors like your income level, growth plans, and how much personal risk you’re willing to take.

• Sole Trader: This is the most straightforward option, particularly suited for freelancers or those starting small. Operating as a sole trader means you’re personally responsible for any debts your business incurs, which can be a risk if your venture faces financial challenges. However, it’s easy to set up, and the administrative burden is relatively light, making it an attractive choice for creatives taking their first steps in business.
• Partnership: A partnership may be the way to go if you’re working alongside one or more individuals. In this arrangement, profits and responsibilities are shared according to your agreement, which can be advantageous when pooling resources and skills. However, shared liability means that all partners are equally responsible for any debts, regardless of who incurred them, so trust and clear agreements are vital.
• Limited Company: This structure offers more protection, as it legally separates personal assets from business liabilities. It’s often more tax-efficient for higher earnings, as profits are subject to corporation tax rather than personal income tax. Running a limited company comes with additional administrative duties, such as submitting annual accounts to Companies House and filing corporation tax returns, but the financial and legal benefits often outweigh these complexities.

2. Mastering Cash Flow Management

For creatives, managing cash flow is crucial due to the often unpredictable nature of their income. A strong cash flow strategy ensures you can meet expenses during quieter months and avoid financial stress. Poor cash flow management can lead to overspending during busy periods or an inability to cover essentials during slower times.

How to Manage Cash Flow:

• Track Your Income and Expenses: Regularly monitor your finances by categorising your spending into fixed costs (like rent, utilities, or subscriptions) and variable costs (such as materials, equipment, or travel). Knowing where your money goes helps identify areas where you can cut back if needed.
• Set Aside Savings: When work is abundant, save a percentage of your income to build a financial cushion for leaner months. Aim to create a reserve fund that covers at least three to six months of essential expenses.
• Create Monthly Budgets: Develop realistic budgets based on your average income, prioritising necessary expenses while setting limits on discretionary spending. Adjust your budget as your income fluctuates.

3. Maximising Your Allowable Expenses

Reducing your taxable income by claiming allowable expenses is one of the most effective ways to keep more of your hard-earned money. However, knowing which costs qualify can be tricky, and mistakes can lead to under-claiming or issues with HMRC.

Common Allowable Expenses:

• Equipment: Includes essential tools for your work, such as cameras, computers, software, or musical instruments.
• Travel Costs: Covers business-related travel, such as train fares, mileage, and accommodation for work trips.
• Marketing and Advertising: Expenses for promoting your services, such as social media ads, website hosting, and design costs.
• Home Office Costs: If you work from home, you can claim a portion of household expenses like electricity, heating, and internet based on your work-related use.
• Professional Memberships: Subscriptions to industry bodies, unions, or professional resources directly related to your field are deductible.

4. Understanding Self-Employment Taxes

Being self-employed comes with the freedom to manage your work on your own terms, but it also means taking responsibility for your taxes. As a creative professional, understanding your tax obligations is essential to avoid penalties, maintain cash flow, and ensure your business thrives. Taxes for the self-employed in the UK include Income Tax and two types of National Insurance Contributions (NICs).

Key Taxes for Creatives:

• Income Tax: This is based on your profits after deducting allowable expenses. The rates are progressive, meaning they increase as your income rises:
  • 20% for income up to £50,270 (basic rate)
  • 40% for income between £50,271 and £125,140 (higher rate)
  • 45% for income above £125,140 (additional rate)
• Class 2 NICs: A flat weekly rate (£3.45 per week for 2024/25) if your annual profits exceed the small profits threshold of £6,725. This contribution helps build your entitlement to benefits like the State Pension.
• Class 4 NICs: These are calculated as a percentage of your profits. For 2024/25, the rates are:
  • 6% on profits between £12,570 and £50,270
  • 2% on profits above £50,270

Failing to meet tax deadlines or underestimating your liabilities can lead to costly penalties and cash flow problems. HMRC requires you to submit an annual Self-Assessment tax return and pay your taxes in two installments: the first by January 31 and the second by July 31 (if applicable).

5. Planning for Your Retirement

As a self-employed creative, you won’t benefit from an employer-sponsored pension plan, making taking control of your retirement savings essential. While this requires extra planning, several tax-efficient options are designed to help you build a secure financial future.

Retirement Savings Options:

• Personal Pensions: These are accessible, flexible options that allow you to contribute at your own pace. The government adds tax relief on your contributions, effectively boosting your savings. For example, if you contribute £80, the government tops it up to £100 for basic-rate taxpayers.
  
• SIPPs (Self-Invested Personal Pensions): These work similarly to personal pensions but give you more control over where your money is invested. You can choose from a wide range of investment options, such as shares, funds, or property, allowing you to tailor your pension strategy to your financial goals and risk tolerance.
  
• Workplace Pensions (for Limited Companies): If you run a limited company, you can set up a workplace pension for yourself and any employees you may hire. Employer contributions to workplace pensions are tax-deductible business expenses, making this an attractive option for both retirement savings and reducing your corporation tax bill.

Freelancers often prioritise immediate income over long-term planning, but neglecting your pension can leave you vulnerable in retirement. Starting early allows your contributions to grow over time through compound interest, helping you achieve a comfortable retirement without financial stress.

6. Building an Emergency Fund and Reinvesting in Your Career

Financial resilience is vital for self-employed creatives, as income can be unpredictable. An emergency fund acts as a financial safety net during quieter periods, while reinvesting in your career helps you stay competitive and grow your business.

Emergency Fund Tips

• Save 3–6 Months of Expenses: Aim to save enough to cover your essential living costs, such as rent, utilities, and food, for at least 3–6 months. This cushion can help you manage unexpected lulls in income or emergencies without falling into debt.
• Use a Separate Account: Keep your emergency fund in a dedicated savings account. This helps you avoid the temptation to dip into it for everyday expenses and ensures the money is easily accessible when needed.
• Save Consistently: Contribute to your emergency fund regularly, even during busy periods, to build it up over time.

Reinvestment Ideas

• Upgrade Equipment: Invest in better tools, whether that’s a new camera, high-performance software, or improved studio equipment. These upgrades can enhance the quality of your work and help you attract higher-paying clients.
• Professional Development: Take courses, attend workshops, or gain certifications to refine your skills or learn new ones. Staying updated with trends in your field keeps you ahead of the competition.
• Marketing and Branding: Invest in a professional website, social media advertising, or branding services to boost your visibility and attract new opportunities.

7. VAT Registration and Tax Benefits

Value Added Tax (VAT) is a sales tax that applies to most goods and services in the UK. If your business turnover exceeds the VAT threshold, which is £90,000, you are legally required to register for VAT. However, even if you earn less than this threshold, voluntarily registering for VAT can offer certain tax benefits, particularly if you have significant VAT-able expenses.

When to Register for VAT

• Mandatory Registration: If your business turnover exceeds £90,000 in any 12-month period, you must register for VAT. Once registered, you’ll need to charge VAT on your sales and submit quarterly VAT returns to HMRC.
• Voluntary Registration: If your turnover is below the £90,000 threshold, you can still choose to register voluntarily. This may be beneficial if you have significant business expenses that include VAT, as it allows you to reclaim VAT on those purchases. For example, if you regularly buy equipment or materials, registering for VAT could save you money by recovering VAT paid on these costs.

Tax Benefits of VAT Registration

• Reclaim VAT on Purchases: By registering for VAT, you can reclaim VAT on most business-related expenses, including equipment, materials, and even some overhead costs like utilities or office supplies.
• Improved Business Credibility: Some clients prefer working with VAT-registered businesses as it adds a layer of professionalism and can signal stability.
• Avoid Future Registration Hassles: If you’re nearing the turnover threshold, registering early can save you from having to rush through the process when you inevitably exceed the limit.

Navigating the world of self-employment taxes and finances can be tricky, but with the right financial strategies in place, you can take control of your money and reduce your stress. Whether you’re just starting out or looking to optimise your current financial setup, an experienced accountant can help you make the most of your earnings and keep your business running smoothly.

Want to make sure you’re on track? Get in touch with us at BM & Co, professional accountants specialising in working with creatives. We’ll guide you through the process, helping you save money and focus more on your art, design, writing, or music.