Share this content

Can you use cash accounting for royalties?

If so, what is the date of revenue recognition, as quarterly payments could be manipulated?

Didn't find your answer?

Royalty income is paid quarterly by a US company, for music used on large online platforms. The self-employed composer is still trading and nowhere near retirement, with earnings ~ £130,000/year (majority from royalties). I know the usual timing recognition for royalties is 'when the amount can be measured reliably', for normal accruals accounting. Does this still apply and override any cash accounting considerations?

Is it valid to use cash accounting for royalties? I have been through BIM70005 and royalties are not specifically mentioned. I cannot see anything that excludes them. If so, is the date of the quarterly payment to the composer the relevant date of income recognition, and so four quarterly payments each year can go on their tax return? 

Furthermore, IF the above scenario is valid, then, if you ask the US company to delay payment for a quarter, so that it is paid in the next tax year, can this delay the tax due to the next year, if cash accounting?? My instincts say no as this would allow manipulation, but I cannot find the relevant tax rules that invalidate this line of speculation. (The delay would significantly help the tax position, and the royalties are expected to decrease significantly so the 150,000 cash accounting threshold is not expected to be breached. I know putting the royalties through a Ltd company would be a safer tax-saving solution, but wanted to understand the rules surrounding my points above).

Replies (1)

Please login or register to join the discussion.

By WhichTyler
24th Jan 2019 09:21

Have you looked at averaging (HS234)?

Thanks (1)
Share this content