How to correctly declare income from royalty copyright

fgt67

Hi, I've been trying to find an answer to this question for a while and always get conflicting answers.

I receive royalty copyright payments from a US based company each month. This company has ownership of the licensed IP and I receive a share of the royalties as agreed in the revenue share agreement.

What I would like to know is does this income still come under as self-employment/sole trader even though I have no active involvement in it's generation? It's completely passive and I have no control over what they do with the IP. I have been declaring the income as Foreign Royalties in section SA106 on my self-assessment and I'm otherwise categorized as unemployed.

fgt67

Thanks.

I have since been looking into this more to try and find a definite answer and the consensus has generally been that the income should be treated like any other self-employed income source. The royalty payments come from a Revenue Sharing agreement for a portion of the Adjusted Gross Revenue (same as music sales) so I guess this will still be interpreted as "trading". My main concern at the moment is that I did not pay any Class 4 NICs due to it not being declared as self-employed income and I'm thinking that I may still have been liable to do so.

mybestattempt

fgt67 said:

Thanks.

I have since been looking into this more to try and find a definite answer and the consensus has generally been that the income should be treated like any other self-employed income source. The royalty payments come from a Revenue Sharing agreement for a portion of the Adjusted Gross Revenue (same as music sales) so I guess this will still be interpreted as "trading". My main concern at the moment is that I did not pay any Class 4 NICs due to it not being declared as self-employed income and I'm thinking that I may still have been liable to do so.

Just my thoughts and others may take a different view.

However, I don't think the payments are self employment income but are miscellaneous income being annual payments which are 'pure profit income':


https://www.gov.uk/hmrc-internal-manuals/international-manual/intm163090

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim8010

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim8020

fgt67

My payments come in monthly at the end of the month so I don't know if they'd count as annual payments or pure profit. I have found a post on another site for the similar issue of paying national insurance on royalties. I can't post links so have quoted the important bits.

QUESTION

"Hi,

A client of ours does some self-employment music work throughout the year but these profits are below both the Class 2 and Class 4 NIC thresholds. So far, no problems.

In 16/17 he received some £40,000 re PRS royalty income. 

My question's are:

1. Is this PRS income liable to both Class 2 and Class 4?

2. If so then surely it needs to be disclosed on his 16/17 self-employment pages in order for 3rd party software to calculate the relevant liabilities? I understand royalty income is usually disclosed as 'Other Income'.

If someone could point me towards some HMRC guidance/legislation it would be greatly appreciated."

ANSWER

"Your understanding that royalty income is usually disclosed as other income is incorrect.

If the PRS income is immediately derived from his "music work", then it forms part of the profits of his "music work" business."

My situation is that my artistic "contribution" is distributed by a publisher for a fee for which I'm entitled to a portion of the revenue. I will receive these royalty payments indefinitely until the said contribution no longer generates any revenue or I do not update my tax information with the IRS in the USA which I'm required to do every 4 years. I can continue to create new contributions while still receiving the income for past contributions so I don't know if this means that these payments I will continue to receive are still derived from an active trade or business.

I guess I don't really have any option other than to play it safe and assume that I do still need to pay the Class 4 NICs as the payments I'm receiving won't be considered "post-cessation receipts".