When you are in a business where you can earn good money, but the income is not guaranteed every month, not knowing where the next cheque is coming from becomes a tricky fact of life.
Continuity announcers, models, actors, singers, dancers, musicians, comedians, journalists, directors and producers who live on a fluctuating income but don't qualify for artists' exemptions from income tax can find themselves hampered by their financial position.
Most financial products and services are designed for people with a regular monthly income. Those who live in hope of lucrative work, but often end up counting the pennies cannot afford to be sensible much of the time and tend to forget to be sensible when they have the means.
Mr Marc O Broin of Marc O Broin & Associates is an accountant who has many clients in the entertainment industry. "I always encourage them to start a pension, but I'd be surprised if even 15 per cent of them have done so. Typically they concentrate on trying to buy a home first."
The main priority for people on irregular income is to get their tax affairs in order. Most are self-employed and qualify for Schedule D. They receive money for each job, in some cases less an agent's commission. The important thing, Mr O Broin says, is to keep receipts for legitimate expenses to offset against the tax bill.
"I give my clients a list of expenses headings and remind them to keep all receipts as they go along in one place. Then at the end of the year it is only a few hours' work to sort receipts into the right categories before they hand over to me."
Because it is extremely difficult for irregular earners to estimate what their income will be even for the next six months, it makes sense to pay tax on the previous rather than the current year's income. Self-employed people have three choices on when they pay tax. On November 1st of a given year, the individual can pay 90 per cent of the current year's liability (which extends to April of the following year). Alternatively, the person can pay 100 per cent of the previous year's liability, April to April. The final option is to be a little further behind and pay 105 per cent of the liability for the year before that by direct debit. The income tax return is then due by January 31st.
If a taxpayer opts to pay preliminary tax of 90 per cent liability for the current year, he or she has to pay the balance by the end of the following April. Self-employed people are also liable for 5 per cent PRSI. When applying for mortgage, self-employed people without a regular income are assessed on a case-by-case basis. Because of their different circumstances the calculation of a mortgage of two-and-a-half to three times annual income may not be applicable. To work out whether such a person is eligible to borrow, and how much, the lender will look at bank statements and savings records to establish repayment capacity. If the thought of that makes you shudder, it's worth noting that there is assistance available from brokers, financial advisers and accountants.
Mr Mr Liam O'Connor is manager of residential finance with the Irish Mortgage Corporation and has helped secure mortgages for self-employed people on fluctuating incomes. "The presentation of the application is crucial and it's important to highlight all the positives," Mr O'Connor said.
There are various mortgage options for people who want to keep repayments down and knock lump sums off their capital at various stages in the term of the loan. With pension and endowment mortgages you pay interest only to the lender for the duration of the loan. In the case of a pension mortgage the capital is repaid by using the tax-free lump sum generated by making pension contributions and payable at retirement.
With an endowment mortgage the lump sum is obtained by making a separate contribution into a savings vehicle, typically an endowment policy.
When a mortgage is being agreed there are other special arrangements that can be availed of to make things easier in low earning times. Some lenders will allow moratoriums on repayments for a few months, but this is usually only allowed after a year or two of regular repayments. Other institutions allow slightly higher repayments for 10 instead of 12 months of the year or build in a couple of months' delay before the first repayment date.
As a general rule it's possible to make lump sum repayments on a variable rate mortgage any time. But the same degree of flexibility does not apply to fixed rate mortgages. Some lenders will allow the client to pay a portion of only five or 10 per cent of the capital in lump sums during the fixed term, which is usually five years.
Just to make things more complicated, it's also possible to split your mortgage between fixed and variable on a combination of either the pension, endowment or more common annuity or repayment method. This may provide some security and flexibility at the same time.
One problem many self-employed people have to deal with is the delay in getting paid. Ms Maureen McGlynn of First Call Management is an actors' agent based in Dublin, with many well-known actors on her books.
As an individual it's difficult to chase late fees from slow-moving accounts departments and Ms McGlynn has had cases of actors waiting up to six months to receive cheques for advertising work.
It can be a personal and financial strain waiting for that elusive part in Fair City or a place in the National Symphony Orchestra. In the meantime most artists and people in the entertainment business survive from job to job and hope the big time is just around the corner.
