Who is affected?
Creators of literary or artistic works.
What are some of the issues and how do they work?
There are some issues which specifically affect creators of literary or artistic works. These may include:
- Advances – when are these taxable?
- Awards, grants, bursaries and literary prizes – are these taxable?
- Foreign tax deductions from overseas royalties
- Averaging profits
An advance received may be subject to certain conditions being satisfied, for example delivery of a manuscript, and if that condition is not satisfied then the advance may have to be returned. In these circumstances, the advance may not become taxable until later when the condition is actually satisfied and the advance is then non-returnable. However, a full review of the circumstances would be required.
Awards, grants, bursaries and literary prizes are not always taxable if they are unsolicited. In each case the details should be reviewed carefully.
Some overseas royalties payers may deduct foreign tax. There are Double Tax Agreements between the UK and most countries which determine how much tax each country may deduct, and that is the maximum amount of foreign tax which HMRC will allow the author to set off against their UK tax liability. It may be possible to apply in advance to ensure that the overseas royalty payer does not deduct more than the amount set out in the Double Tax Agreement.
Profits may fluctuate from one year to the next. If one year’s profit is less than 75% of the previous/following year’s profit then it may be possible to claim to average the profits of the two consecutive years. This may result in a lower tax and NIC liability overall, for example if it avoids becoming a higher rate taxpayer in either year.
There are other issues which may also affect creators of literary or artistic works such as VAT registration, allowable expenses and residence.
What should I do next?
If you would like our help in dealing with your income from literary or artistic works, please do not hesitate to contact Steve Mayo in our Private Client Tax team.