Since the dawn of pop, the UK has been a major player on the world’s music stage generating over £2.5 billion in exports and attracting over £4 billion in music tourism in 2016 according to UK Music’s Measuring Music 2017 report.
The local and tourist audiences built on this rich musical heritage has enabled The 02 London to consistently sell more tickets than any other arena in the world, with Manchester Arena and The SSE Hydro Glasgow joining it in Pollstar’s top 4 for 2017. The London Stadium and Twickenham hosted major outdoor shows by US acts and international artistes graced stages from grassroots venues to the grassy fields of Glastonbury.
Naturally all of this activity is bound to attract the interest of the taxman so touring musicians, along with other performers and athletes, are singled out for some special treatment in most international tax treaties – the country in which they perform is entitled to withhold tax on their earnings from those performances. In the UK anyone paying over a certain threshold to a non-resident performer must withhold basic rate tax, currently 20%, on the gross payment – so the default position if no action is taken is for 20% of all UK guarantees, overages to be taken off the top, as well as related income streams such as merchandising, VIP tickets, live recordings and sponsorship.
The threshold is pegged to the UK personal allowance, currently £11,850, and applies to payments made by the payer, eg promoter, to the artiste in the UK tax year – which quaintly runs to 5 April each year. If the payer exceeds the threshold – or knows that they will do in the tax year – then they must withhold 20% tax on the full payment unless instructed to do otherwise… which is where we, and The Queen, come in.
Her Majesty, in her Revenue and Customs office, has a team called the Foreign Entertainers Unit (“FEU”), and we can file an application to have the withholding tax calculated on the net profit from the tour rather than the gross income. We handle hundreds of these every year and in most cases this will significantly reduce the amount of tax due to be withheld. Sometimes, on very profitable tours, the tax due on profit will exceed the basic rate on gross income – I’d be happy to explain that another day or in a call.
As comedians will know, the key to dealing with the FEU is… timing. To reduce taxes on a payment we must apply to them at least 30 days before the payment is contractually due – fortunately this does not apply to deposits, only the balance payment. Late applications will be rejected, but filing on time does not mean that the tax will be agreed before the payment is due, that usually takes 6-8 weeks so filing well ahead of time is recommended if possible.
Although the UK’s withholding tax system is intended to be simple and effective it does create anomalies, particularly in respect to whether and when payers exceed the thresholds and, after agreement ensuring any excess withholding tax is released and tax certificates are issues. We are well versed in these issues.