When are PRS royalties taxable?

When are PRS royalties taxable?

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My client receives substantial royalties from the PRS. These are received quarterly and form his income as a sole trader. My question is which tax year do the royalties fall into?

At first, I thought that the late-April 2013 payment would be for the Jan-March 2013 quarter and so have to be accrued in 2012/13. But then I looked at the detailed PRS statement and it shows that the April royalty payment is for a myriad of different past periods. This is the norm for this client rather than an aberration.

I would like to include the PRS royalties in the tax year in which the PRS statement is dated. In other words, late-April 2013 in 2013/14. Is this tenable?

Replies (8)

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By Steve Kesby
30th Nov 2013 11:03

This is the norm...

... not just for your client, but for all recipients of PRS and other receipts relating to music publishing.

I'm assuming that you're doing 31 March 2013 accounts now. So you should have April, July and October statements available. All amounts that relate to periods earlier than 31 March 2013 from those (and earlier!) statements should be brought into 31 March 2013.

The theory being that all the income being received was actually earned at the time of original composition. At that point though it wasn't known how much the income would be, nor was it prudent to include any estimate.

At each year-end thereafter it's not prudent to include an estimate of future earnings from the composition, but the known income should now be brought into account, since it was earned historically.

Thanks (2)
Replying to marting:
Red Leader
By Red Leader
30th Nov 2013 11:16

crikey

So if I do/did the 2012/13 return on say 6 April 2013 before the April 2013 PRS statement was available, I wouldn't have to accrue because I wouldn't know at that date what the delayed royalties were?

By the way, my client's April PRS statement is over 1000 pages long!

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By Steve Kesby
01st Dec 2013 14:28

You only need to identify...

... the income on the April statement that relates to compositions since 31 March.

I think getting in quick to avoid having to bring the April statement in as income might be regarded as wilful manipulation. Possibly ditto for July.

Filing before October isn't unreasonable, and you obviously have to file before the following January statement is due.

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By Martin B
01st Dec 2013 19:43

6 months post balance period period.

I have a client who receives quartrerly royalties from PRS, and has a  31 March year end. I always wait for the next two quarterly PRS statements and accrue amounts relating to the previous financila year end as amounts are always material. Seperately I also do this for a limited company client. It works for me. Both clients understand this.

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By carnmores
02nd Dec 2013 00:47

I disagree Steve

I have been dealing with these for 30 years and have not seen Steve's advice in action more than a few times , but am loath to disagree with him as I and many others are indebted to him for his fantastic support. as far as I understand it the entitlement to receive only crystallises on payment and is accounted for accordingly. the same thing could be applied to artist or composer royalties which in the past could be received upto 2 years after arising but it is generally accepted that the date of payment is the tax point  

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By Steve Kesby
02nd Dec 2013 10:29

@ carnmores

Woolcombers! :P

When you say generally accepted; accepted by whom? Does that include acceptance by HMRC?

Incidentally, I do agree with you that the income is accounted for on a receipts basis once the song/music writing profession has ceased.

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By derek austin
14th Apr 2017 16:24

Hi, I hope you all will forgive a non-accountant joining in, but I am a composer in a quandry, currently under a tax investigation. My accountant tells me that HMRC will not allow ANY expenses against PRS Royalties, and that they are are not treated as 'trading income'. I am loathe to ask HMRC direct if this is so, as my accountant has advised against doing that. Can anyone confirm or deny this, and in either case, point me to somewhere in HMRC regs where this is clearly laid out? I would be very grateful, thank you. Derek

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By Andy L
25th Sep 2017 16:51

This is quite clear in Vat Notice 700

"15.8 Royalties and similar payments

If at the time when you supply services, you can’t work out the royalties that you will subsequently receive, and which are in addition to any amount already payable for the supply there will be a further tax point (either):

-each time you receive a payment
-issue a VAT invoice

whichever happens first"

When receiving PRS royalties it will therefore be the date of the PRS statement. It matters not if you have ceased trading or not, the royalties are undeterminable at the time of writing the song so future royalties are taxable when payable to the composer.

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