Riding the D-Train (part 2)

A perennial problem has arisen, partly because inspectors generally regard part-time teaching as a contract of service, taxable under Schedule E.

Part-time Teaching: Problems and Solutions
A perennial problem has arisen, partly because inspectors generally regard part-time teaching as a contract of service, taxable under Schedule E. And they have increasingly done so with art schools, tightening what was hitherto a reasonably flexible and, at times, arguably generous exercise of their discretion; especially since the virtual decimation of the previously healthy and large numbers of part-time teaching posts in art schools. This is not the place to speculate as to why these two events – tighter control and cutback in numbers – so mutually linked, should have occurred almost simultaneously. This is what is happening on the tax front.
The Schedule D Case I or II Practitioner

It is extremely difficult for artist practitioners, who also teach part-time in art schools, to satisfy inspectors that their teaching income, vital to their survival, can and should be taxed under Schedule D Case I or II together with other income from practising – rather than being taxed under Schedule E, as is usually the case. What happens is that such artists truck up and down the country giving the odd day/block in the odd art school, travelling at their own expense; receive a cheque (later, rather than sooner) representing the fee and travelling expenses, less income tax deducted under Schedule E (usually at the emergency rate), less national insurance (at the employee’s rate), less pension contributions, less superannuation, or even less union dues.

Not only does this practice curiously vandalise vital cash-flow for the artist, but it also means that travelling expenses paid out of taxed income are then taxed on reimbursement (under Schedule E) – rather than forming part of the artist’s tax deductible expenditure to be set against that income, as would occur if it were to be taxed under Schedule D together with other such income as an artist.

Some art schools send out information to newly contracted part-timers – would-be “employees” – explaining their intention to act under Schedule E, and advising artists to liase immediately with their own tax inspectors. The result of doing so can in fact solve .the problem; the artist’s inspector issues a special notice of coding certifying in essence that the artist will pay tax on the income under Schedule D Case I or II, and that no tax should be deducted under any Schedule (including E) by the art school. This notice then allows the school authoritatively to pay the fees and travelling expenses gross to the artist, and without incurring the wrath of their own inspectors for so doing. Such scenarios, though possible, are rare. Alternatively, artists negotiating for part-time teaching may wish to raise this question themselves, in advance of finally agreeing to become engaged – at risk, of course, of losing the engagement – and immediately liasing with their inspector and the college treasurers on the matter. This process does require a confident, delicate diplomat, especially at the college.

Additionally, artists may wish to preserve their rights in the matter by accepting the engagement on the terms offered, albeit Schedule E and, when confirming acceptance in writing (usually on a college pro-forma), add a written rider in the following or similar terms: whilst undertaking this engagement and understanding the college’s administrative arrangements for payment, I reserve my position on the question of tax and national insurance (etc.) with a view to clarifying the status of this engagement with my own tax inspector in due course. This approach will help later when dealing with their own inspector, who should be reluctant then to argue that having accepted the engagement, on the terms offered, the artist has also accepted Schedule E status for the work. This process can and does succeed. Moreover, but least desirably, artists may wish to put forward to their inspectors at the end of the tax year, or earlier, some of the following factors supporting their case for Schedule D status for part-time teaching.

  1. Terms of engagement
    Copies of correspondence negotiating and confirming the contract; especially where phrases are used such as “contract for services, fee, travelling expenses, subsistence, free-lance engagement, professional artist”; and, where appropriate, the rider mentioned above.
  2. Control
    Any evidence of the artist being given a free hand to deliver a self-structured presentation; as against being required to fulfil a pre-existing teaching slot on a course structured by the college in advance and demanding detailed input by the artist in accordance with very specific instructions.
  3. Period of engagement
    A unique, non-recurring engagement is likely to be treated more readily as Schedule D work; as against a regular one/two days per week/term/year – the more permanent and/or periodic and regular, the more likely to be regarded as Schedule E income.
  4. ‘As a practising artist’
    This phrase is sometimes helpfully inserted into part-time contracts by colleges, genuinely acknowledging that the artist’s services are being engaged solely because they are in practice, and principally to visit the college to act as such albeit in an educational environment. Close liaison with Department heads – during initial negotiations, can be useful here; and remember, if the college does pay under Schedule D, they save money by not also having to pay an employer’s national insurance contribution which is required for Schedule E employees.

Finally, whether or not all or any of these options is tried, all is not lost. Remember that any Schedule D Case I or II losses during the year can be set-off against such Schedule E part-time teaching income in any event; with the result that some, if not all, the income tax creamed away at emergency rates earlier in the year could be repaid as a rebate at the end of the year.

The post-script: since travelling and its cost is one major problem in this scenario, artists may wish to consider teaching closer to their studio/home base.

The Schedule D Case VI ‘Hobbyist’

Those treated as Case VI ‘hobbyists’ are caught in a vicious circle. They are likely to have been assessed under Case VI solely because the bulk of their income comes from teaching- taxed, inevitably, under Schedule E. In other words, whilst fortunate in having achieved an amount of teaching sufficient to support their practices, they are for that very reason denied Case I or II status i.e. they have not generated sufficient income from sales, commissions and so on, to be regarded as a Case I or II artist.

Additionally, of course, such artists have precisely the same cash-flow problems and the same tax deductible expenditure difficulties with travelling expenses, as Case I or II colleagues.

Firstly, of course, to achieve Case I or II status (as to which, see the section on The Law, above). Second, try the options available to Case I or II artists, mentioned above. However, the one thing Case VI ‘hobbyists’ cannot do is to set-off any Schedule D losses against their Schedule E teaching income – unlike their Case I or II colleagues who can do so. Therein lies the rub, the answer to which can only be achieving Case I or II status – and it may well be that reducing the amount of teaching, which should help to support the case, will not of itself convince the inspector. Read on.

A Case in Point
Having stayed the course this far, the following letter should make sense. It is a real one, suitably disguised to protect everyone involved, and was written by the artist’s tax inspector to his accountant; it illustrates everything discussed so far.

‘Dear Accountant,
Re: The Artist
The file has now been looked at by our specialists who deal in particular with literary and artistic profits. Their view of the case is that at present there is insufficient evidence of the extent of the efforts made by the artist to promote his work in the commercial market. This is the crux of the case in that if there is insufficient evidence of commercial exploitation then the Inland Revenue takes the view that the income is more properly assessable under Case VI as opposed to Case II. You will be aware that under Case VI there can be no question of losses being allowed by repayment or setting off against other income. Losses can only be carried forward under Section 176 against future income from the same source. I would point out that this is basically the line which I took at our meeting although I do not think that in fact the question of Case VI liability was discussed as such. It is suggested that what is now required is evidence of the extent to which the artist tried to get his work accepted by Commercial Galleries and to this end more detail would be required by way of records than has so far been seen. It would also be necessary for me to have details of the specific trips made, dates etc., the names of the Galleries and the names of the contacts and people spoken to at those Galleries. Reference was also made to telephone conversations with Galleries and some more detail on this aspect would also be relevant.

In general terms the attitude being taken is that a taxpayer must be able to establish that his prime motive is that of making a profit as opposed to the desire for fame or advancement in his work. You will recall from our interview that I put a question of this type to the artist and his answer suggests to me that his motivation is more the pursuit of excellence than financial reward. It must, I think, be borne in mind that up to four years ago the artist was in fact teaching full-time and it is only in the last four years that he has extended his artistic activities and contracted the time spent teaching. The result shown by the statements produced for the last years do not show any great sign of any profits and it must be said that there were in fact only three works sold in the year we are looking at.

At the end of the day, however, the decision has to be made on the basis of the facts. Obviously if sufficient evidence can be produced to prove the attempts at commercial exploitation then I may be persuaded to take a different view but at present I do not see sufficient to justify making such a decision.

Yours faithfully,
H.M. Inspector of Taxes.’

The following comments should be of interest:

  1. The main issues exposed here are two-fold: can the artist achieve Schedule D Case II status, as opposed to Case VI, having been a Schedule E full-time teacher four years ago; can the artist set-off Schedule D losses against other income under Schedule E (i.e. part-time teaching).
  2. The evidence required to establish Case II is no surprise; nor that the artists has the burden of proving this status.
  3. The ‘prime motive’ required as “that of making a profit” is questionable. The law simply requires “a commercial basis with a view to a realisation of profits” i.e. it is the aim, not the fact. In other words, the law should be satisfied if an artist, whilst desiring fame or advancement in his work, did so with a view to “realisation of profits”; those two motives, advancement and profits, are mutually compatible and ‘profits’ is not required to be superior or prime, it simply has to be there.
  4. Further to 3 above, the phrase ‘as opposed to desire for fame or advancement in his work’ clearly connotes the mutual incompatibility of profit with advancement; they patently are not. From time-immemorial precedents support the case that fame/advancement in themselves frequently, though not always, are vehicles leading eventually to the realisation of profits. Opposites they are not; compatible they are and, in the visual art marketplace, are almost pre-requisites.
  5. The artist’s ‘contracting the time spent on teaching’ should support, not contradict, the case for the artist’s motive being the realisation of profits (as well as advancement/fame).
  6. ‘Only three works sold in the year’: in the real marketplace this is more likely to be regarded as indeed the realisation of profits, as opposed to a derisory fact – leaving aside the question of the size and nature the works, the period of their production, their cost and relative value to the artist and to the marketplace. Evidence of normal practice in the visual arts could turn this apparent chink in the armour into a useful weapon in support, also serving to expose what appears to be superficial knowledge from the inspector.
  7. ‘The last years do not show any sign of any profits’: not the issue; evidence of motive is the issue; profits help, but are not essential.

To pursue the advancement of the arts on a not commercial basis, without a view to the realisation of profits, does not ordinarily attract State support. Unless, of course, we speak of the Arts Councils of the United Kingdom established and equipped to do precisely that. With taxpayer’s money.

Some argue, with justification, that it would be less paradoxical and more sensible to stop taxing the very people such revenue is intended to help. Therefore, the State should delete that objective of the Arts Councils and reduce their grants accordingly; and should allow artists pursuing that objective to be taxed less onerously than at present under Case VI, through the benefit of status under Case II. In this way, the Arts Councils’ grant reductions would off-set any loss of revenue. Moreover, the advancement of the arts would then become a matter exclusively in the hands of the artists; this, in turn, would be likely in the event to result in more taxable profits being realised, by the many more artists freed from subscription solely to Arts Council standards of advancement and released from over-reliance on teaching. Riding the D-train.

© Henry Lydiate 1985


Still need help? Contact us

Similar Artlaw articles

Related articles / resources

Featured project

© Helena Hunter, Falling Birds, 2021

Reaching audiences online

Pablo Colella of Disconnected Bodies and artist Helena Hunter in conversation with Nick Kaplony of Artquest https://vimeo.com/539662926 • Date: Thursday 15 April, 7–8 pm • Venue: online via Zoom With… Continue Reading Reaching audiences online

Read more


This article is from the Artlaw Archive of Henry Lydiate's columns published in Art Monthly since 1976, and may contain out of date material. The article is for information only, and not for the purpose of providing legal advice. Readers should consult a solicitor for legal advice on specific matters. Artists can get free online legal information from Artquest.