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Music Royalties and Tax

Advice on VAT and withholding tax on royalties from original sound recordings.

Last updated: 03 October 2023

What is royalty tax?

As a form of their income, musicians can collect royalties from various sources. Whether those might be TV companies, advertising agencies or record labels, the secondary and further use of original recordings makes an artist eligible for royalties from the MU.

Royalties are considered part of your income - so royalty income tax is an extension of the tax that you'll pay on your annual earnings.

If you are VAT registered, please supply us with your VAT number and start date, and we will ensure VAT is applied where applicable. VAT can be paid on payments where the music was used by a licensee based in the UK. If the royalties are sourced from outside the UK, payments will not have VAT applied.

What is withholding tax on royalties?

Also known as tax retention, withholding tax is a form of income tax paid to the government by the income payer, not by the individual who receives the income. As such, the tax is withheld from the amount due to the recipient.

Royalties that are sourced from outside of the UK might have withholding tax deducted at source. For example, payments from the USA will have 30% WHT deducted by the music user to satisfy their requirements with the Internal Revenue Service for the United States.

If your payment has had WHT deducted, you may be able to offset this deduction against your UK income tax. More information on WHT and taxation relief can be found on the HMRC website.

How are royalties taxed in the UK?

Since royalties are part of your income, they count towards your annual tax. Declaring royalties on your UK tax return is therefore necessary if you receive them from your original music, production, or any other intellectual property.

In some cases, royalty payments are tax deductible - and if you have earned less than £1,000 in royalties across the tax year, you will not need to return a tax form. You should expect to pay taxes on royalties if you work in the UK with domestic clients.

We always recommend seeking specialist tax advice and guidance for musicians to help you to manage your income effectively.

Are royalties taxed for overseas projects?

If you have been working with an overseas client or your music has been used in another country, you might be subject to withholding tax on royalty payments. Companies in specific territories will need to deduct withholding tax at 20% from royalty payments.

This applies to royalties that stem from the UK, even those without a physical taxable presence. However, working with overseas companies means that mitigation could be available to you under the double tax treaty.

It's important to remember that many EU countries have obligations to report any payments of interest, royalties and dividends to a UK company with their domestic authority. You should always check with overseas payers to clear any avoidable income reduction before you get paid.

How can the MU help with royalties and tax?

If you are struggling to decipher invoices or would like to know more about withholding tax on royalties, do not hesitate to contact the MU for more advice.

Please supply us with your VAT number and start date if you're already registered for VAT when you get in touch. VAT can be paid on payments where the music was used by a UK-based licensee. If the royalties are sourced from outside the UK, payments will not have VAT applied.

If you need more support, the Musicians' Union will happily refer you to experienced Chartered Accountants HW Fisher. You can download the Tax Guide for Musicians by HW Fisher to learn more about tax, accounting and bookkeeping.

Contact the Musicians' Union today

The MU has a network of experienced teams available to help musicians in all areas of the industry. If you have any questions about our services, membership or how the MU could help you with collecting royalty income tax, please do not hesitate to get in touch.

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