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Author incorporation - value of copyright

How to value copyright when book only partially written

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Author incorporation has already been discussed in this thread - https://www.accountingweb.co.uk/any-answers/author-becoming-ltd-incorpor...

My understanding is that the market value of the copyright that is transferred on incorporation (or right to expolit the copyright) needs to be treated as trading income for the sole trader when they transfer it into the company.

My question is how on earth is that valued?

Scenario 1 - author has received £20k of £60k total advances and they have written 3 of 10 chapters at the point they incorporate

I can think of a few possible ways it could be valued (perhaps none are correct!)

  1. the copyright of a partially complete book is worth nothing
  2. the value is 3/10 of the £20k advance already received
  3. the value is 3/10 of £60k (total value of advances)

Scenario 2 - book is complete, all advances received, royalties trickling in, then copyright transferred.

I would guess the value would be expected future income with some discount applied... but unsure on this too

Has anyone got any first hand experience of this which they could share? What do HMRC agree as reasonable valuation methods in these scenarios?

 

Many thanks in advance

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By paul.benny
08th Oct 2019 11:09

Scenario 1
I would value a part-completed work at nil. If the author has sufficient standing that it could be completed by a ghost-writer and marketed as by the original author, *possibly* there is a value.

Scenario 2
I'd work backwards from the 'right' answer and justify that rather than trying to determine a valuation and then finding it has unwelcome tax consequences.

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By The Dullard
08th Oct 2019 12:04

Will the transfer to the company be a fiction or a non-fiction?

By the way, assuming that the advances are payable irrespective and are not recoverable otherwise by recoupment out of future royalty earnings, the value must be at least the £40K that is yet to be received. Subject, of course, to my first point.

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By WhichTyler
08th Oct 2019 14:01

Presumably the terms of the sale of the right to exploit will allow the author to rescind the right at relatively short notice

This might affect the valuation...

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By Carl London
08th Oct 2019 14:05

The £40k additional payments are payable when the next stages of the agreement have been fulfilled - manuscript delivered, then final edits approved, so I would view that additional work is done while the company fulfils that part of the contract.

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Replying to Carl London:
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By WhichTyler
08th Oct 2019 16:45

It strikes me that delivery payments are possibly different to the right to exploit copyright. After all the company is not writing the book, the author is...

But I am not an expert in this particular area, and others might be. Might be worth asking Society of Authors if they have a list of specialist advisors

https://www.societyofauthors.org/Advice/ask-an-advisor

Maybe writers and artist's Yearbook

It might mean you sharing the fee this time round, but you stand a better chance of getting it right, and you will have learned something in the process...

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