Student selling something - must they declare income?

monkey_writer

Hello! I'd love some advice.

I am self-employed. Just before the end of the last tax year - in late May 2012 - I bought the film rights to a story from someone who was a full-time student. They had no income and I paid them £3500 - so well under the tax threshold.

We assumed at the time that this was fine - just like selling a car, it wouldn't have to be declared.

But someone since has said that as she had written the story, when she sold the rights to it, that would be considered work, and she should have registered as self-employed at that point and it should be declared on a tax return.

Does anyone know which is correct? I bought the story as part of my business, so the purchase will go on my tax return as an expense - which will then be trackable to her. So I don't want her to get into trouble.

Thanks!

martinsurrey

has she sold other works? how did you come to buy it? did she write it specifically to sell?

if its a one off accidental sale which was not the main motive of the work, HMRC will not likely consider it trade (so not self employed), but she will need to declare the income on a tax return (but pay no tax if she has no other income)

Deciding if you are trading is not a very easy job on the fringes like this, so without a lot more info I couldn’t offer anymore than above.

monkey_writer

Thanks so much for your reply Martin,

We are friends, she came up with the story and told it to me - I thought it would make a great film so I bought it. I'm slowly developing the screenplay based on the idea. She hasn't done it before or since - and this tax year she has graduated and is in full-time PAYE employment.

antrobus

monkey_writer wrote: »

... Just before the end of the last tax year - in late May 2012 - I bought the film rights to a story from someone who was a full-time student. They had no income and I paid them £3500 - so well under the tax threshold....

The tax threshold applies to earnings in the tax year. The student concerned might therefore have a tax liability depending on how much they will earn from their "full-time PAYE employment" this tax year.

That however, would be the student's problem, and not yours.

martinsurrey

http://www.hmrc.gov.uk/manuals/bimmanual/bim20205.htm

badges of trade

Profit-seeking motive - not in this case, she wrote the story as part of her study (?) or for personal enjoyment - does not support trade

The number of transactions - only one - does not support trade

The nature of the asset - personal enjoyment - does not support trade

Existence of similar trading transactions or interests - no other trades or interests - does not support trade

Changes to the asset - self made, she didn’t adjust her story, you have - Does not support trade

The way the sale was carried out - informally, she didn’t approach you with it with the intention to sell (or did she?) - does not support trade

The source of finance - No finance - Not relevant

8 and 9 are also not relevant.

based on what I know about you her and the transaction, it would be very hard pressed to call it trade, but it is other income, so needs to be declared.

monkey_writer

Thanks again, your help is very much appreciated. This is possibly the most useful board on the internet!

I have further question - it's not relevant for my issue at the moment, but for future knowledge - would this situation be any different if the person I bought the story rights from were my girlfriend or my wife?

tyllwyd

monkey_writer wrote: »

Hello! I'd love some advice.

I am self-employed. Just before the end of the last tax year - in late May 2012 ...

Do you mean May 2012, which is in this tax year, or is it a typo?

monkey_writer

Typo! Sorry - I meant March!

00ec25

monkey_writer wrote: »

Twould this situation be any different if the person I bought the story rights from were my girlfriend or my wife?

fundamentally - No
we have had independent taxation for many years now as a result of women's liberation!

each person, man, woman, husband or wife is responsible for their own tax affairs,
they are no longer linked as a couples, unless one of them was born before 1935 and they have chosen, as a couple, to retain the married man's allowance

grey_gym_sock

it might raise questions if you paid a large sum to buy story rights from a non-taxpaying gf/wife, thus reducing your own taxable profits (or if gf/wife paid tax at a lower rate than you). questions that might have good answers, but questions nonetheless.

tyllwyd

Maybe the best thing for her to do would be to write to HMRC and inform them of the circumstances and ask whether she is required to fill in a tax return for that year. That way at least she has paperwork to show that she tried to tell them about it, and if she had no other income in that year, they would be pretty stupid to try to chase her because overall it would end up costing them more money than they could recover from her in tax. (That's just my suggestion as someone who has absolutely no qualifications or experience in tax matters!)