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Composers trading through Limited Company

New client trades through a limited company and has done for a number of years.

Income is derived from composition of music for film and television and the company is currently owned 60/40 between the husband and wife.

All contracts are between the company's clients and the company itself.

At first I felt the structure was safe but my concerns have started to grow from reading a few unspecific threads concerning authors and royalties that "could" in theory impact on the chosen trading vehicle.

The ultimate plan has been to shield profits from higher rate tax and only draw from the company monies which are required from year to year. However profits are now rising to the point that the company is doing very well and the shareholders are both breaching higher rate tax.

Other than the Arctic Systems issues which always lurk in the background but are not necessarily a concern right now I can see that it is highly unlikely that the company can be liquidated in the future and the profits be drawn under CGT benefiting from Entrepreneurs Relief (although income is derived from a combination of fees and royalties - probably 40/60 in favour of royalties now).

One point I would make (in case it is relevant) is that no capital payment was claimed on incorporation of the business.

Part of the plan had been that in years to come the shares could be passed to children etc and that they benefit from the income stream by drawing dividends until at some point the coffers run dry.

Firstly could HMRC challenge the trading structure of the limited company due to the trade?

Is the 60/40 share split safe (the wife deals with the admin of the business but the husband writes the music)?

Any other thoughts/comments - particularly as this is a case concerning royalties?

Responses will be most welcome!!


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06th Apr 2011 09:19

Any thoughts?

Once again any responses will be appreciated as it seems there are lots of threads concerning authors, composers etc and questions asked about trading via companies with notes of caution from contributors particularly about ICTA88/S775 but no definitive responses suggesting, in real terms, whether it is a good idea!

Overall if a composer gifts the right to royalties to a company which is owned 60/40 between himself and his wife I am reading it that on cessation the value cannot be extracted and advantage taken of CGT rates and it has to be taxed as income. In my case the company has not been charged any capital sum for the rights.

I am assuming therefore that in the intervening period it is acceptable to operate the company in the normal way e.g. salary and dividends?

I am also assuming that if the company also receives income other than royalties e.g. presently 50% of the income is derived from fees charged by the company, that it may not be the case that the full value of the company on cessation would be taxed as income and that part of it may be available of relief uder ESC16?

The Revenue website simply indicates that the problem lies with "capital amounts".

An overview of how this can work in practice from someone who has done it would be fantastic. As I have already mentioned I have seen the subject raised several times even to the point that some accountants mentioned that for higher profile names they use nominee directors but it's the very grey areas over the tax effect that worries me!


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06th Apr 2011 10:54

Music publishing

When and in what circumstances was the copyright created?  ie when was the music composed and was the composer an employee of the company or otherwise engaged by the company on such terms that the copyright vests with the company on creation?  If the company owns the copyright at the point of creation, there can be no S.776 ITA 2007 charge.

It is not at all unusual for music copyright to be exploited via a publishing company, which is, in effect, what you have.  In days of yore when income tax rates were higher than they are now, that was pretty much the industry standard model for dealing with the composition income of major UK artists. A S.776 problem can only arise if the copyright is created outside the company and is then transferred in.

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06th Apr 2011 13:24

many thanks for responding...

The director of the company is the composer and whilst he had a few compositions under his belt on incorporation the library has grown ten-fold since.

One issue is that a cd has recently been released and the artist is shown as the director's name rather than XYZ Ltd although the fees for composing the pieces (television and film work) were commissioned to the company.

Is it fair to say therefore that even though the composer is the director that because all income has vested to the company from their composition that normal close company trading can continue from that and, ultimately, if in 20 years time the rules were as they are now that on liquidation ESC16 etc could apply if desired? Although in reality he plans to simply draw dividends from the company as a form of pension and/or pass the shares to his children on death.

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