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TV Industry - Taxation of Residual Payments

Tax Treatment of Residual Payments - Royalties or SE Income?

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I have a TV director who is now in receipt of residual payments for her work on old shows. She earned original fees whilst registered as self employed and is now trading as a Ltd company. The payments are being made to her in her own name. Should I 're-open' her self employment to report these (with them being NI'able - Class IV and Class II) or is it correct to report on her Tax Return under 'other income' as royalties on the basis she has not performed any new work to earn them? Thanks in advance for any observations or guidance

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By Mr_awol
13th Nov 2020 12:42

Who dealt with the incorporation? Did the director (in both senses of the word) assign the right to future royalties to the company on incorporation? Or did they kind of cease trading as s/e and get a 'job' with a close company?

Are they even royalties anyway? What are the terms of the agreement with the broadcasters/rights holders?

Unfortunately all of the TV clients i have experience of are incorporated production companies who make programmes (speculatively or under commission) for C4/Sky?BBC/etc and as such income from future broadcast right income is a bit more straight forward, so this is a bit out of my comfort zone but i imagine your first steps are to find out what the payments are, and then see whether they were assigned to the company on incorporation.

Are these new income streams from old re-runs that havent been relevant in recent history? If not, how has it been treated so far?

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Replying to Mr_awol:
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By winstonb
13th Nov 2020 13:43

Thanks Mr Awol. I've already asked for more detailed info/ paperwork from my client. At incorporation nothing was mentioned so your 'kind of cease trading as s/e and get a 'job' with a close company' suggestion is pretty much correct. In fact, post incorporation, the income was being paid into the Ltd company until the subject of VAT self billing arose, after which payments were transferred to her personal account (tax year 19/20). So now we have to declare them in some form. These are referred to as 'residual payments' and I'm not sure if they qualify as royalties until I dig further. I'm sure they're a regular feature of the industry and if invoiced and paid over their treatment is probably never questioned. I'm grateful for your guidance.

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By Wanderer
13th Nov 2020 13:50

Post cessation receipts, the same as actors?

HMRC wrote:
Actors and entertainers may continue to receive income from the profession, such as royalties, repeat fees etc, even after the profession has been discontinued. If such income is not otherwise charged to tax it is dealt with under the post-cessation receipts rules. See BIM90000 onwards.
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By winstonb
13th Nov 2020 14:01

Thanks Wanderer, I'll take a look. It's the NIC position I'm interested in mainly

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By Montrose
15th Nov 2020 13:51

For NIC position of post-cessation receipts see

https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim24505

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