Every promoter will be aware of the necessity to carefully identify all income and expenditure associated with a tour. Relatively small and unexpected changes can make the difference between a profitable tour and a loss-maker. Accurate financial planning also allows the promoter to calculate attractive levels of guarantee and gauge the fixed percentage to be paid to the artist. With this in mind, withholding tax, at 20%, can punch a huge hole in your budget. The deduction of withholding tax may also come as a surprise to the non-resident artist, whose enthusiasm for any upcoming tour may be depleted on learning of this unexpected cost.
Withholding Tax – The Basics
As a rule of thumb, withholding tax must be paid by anyone who makes a payment to a non-resident artist for any UK appearance. There are some exceptions, but they are limited. Payment includes not only cash, but also expenses paid on behalf of the artist such as airfares or the cost of hotel accommodation.
Withholding tax is paid at the current UK basic rate. At the date of writing (December 2017) this is 20%.
Example 1: A non-resident artist appears at the O2 Apollo in Manchester. The venue is obliged to pay all box office receipts to the artist. The total value of box office receipts is £150,000. The venue pays the artist £150,000 less £30,000 tax = £120,000.
Withholding tax must be paid not only on direct income such as guarantees and any agreed share of box office receipts, but also on indirect sources of income such as merchandising and endorsements.
Example 2: Marshall pays you a £10,000 endorsement fee to use their amps on a UK tour.
Even those that indirectly make payments to a non-resident artist must account for withholding tax. So, for example, a venue paying monies to a promoter must first deduct withholding tax from those monies. The promoter, in turn, must also account for withholding tax.
Example 3: A Promoter engages a non-resident artist to appear at the Roundhouse.
The Roundhouse pays £75,000 less £15,000 tax to the Promoter.
The Promoter pays £40,000 less £8,000 tax to the artist.
The Promoter is liable to account to HMRC for £8,000 but as the payment he has received has had £15,000 withholding tax deducted from it he can treat the £8,000 as paid. This assumes the artist is the only non-resident artist the promoter engages in that tax quarter.
Are there any exemptions to withholding tax?
Yes. Withholding tax does not apply to payments:
- made in respect of copyright, royalties or advances on royalties.
- made direct to an entity for ancillary services. These include security, venue hire, equipment hire and ticket printing.
- made to an entertainer for record sales where the payment is either:
- based on the proceeds of sales;
- a non-returnable advance on account of future sales;or
- sales at a live performance.
- equal to or less than the UK personal allowance for that year (currently £11,500 for the 2017/18 tax year).
Can I reduce the amount of withholding tax?
Yes. You can apply to the Foreign Entertainers Unit of the HMRC to deduct an amount other than the 20% basic rate of tax. To do so, you will need to demonstrate to HMRC that the final liability of the artist to UK tax will in reality be lower than the blanket 20% basic rate of tax. For example, you may be able to agree that the very considerable expenses associated with touring will substantially diminish the income of the artist.
HMRC generally accepts that the following expenses may be deducted from gross income, resulting in quite substantial decreases in the amount of withholding tax that needs to be paid:
- general subsistence expenses;
- commission, manager’s and agent’s fees;
- UK travel; and
- international air fares to and from the UK where the artist comes to the UK to perform and returns directly to their home country.
Other expenses may be deductible depending on the individual circumstances of the artist.
You can make a reduced tax payment application by writing to HMRC with the following information:
- a copy of the contract with the entertainer;
- a list of all the expenses you are paying on behalf of the artist including the cost to you; and
- details of any assets transferred to the entertainer.
How and when do I have to pay withholding tax?
You need to pay any tax due to the Foreign Entertainers Unit within 14 days after the end of the return period in which the payment was made. The return periods are 30 June, 30 September, 31 December and 5 April.
You report the amount of withholding tax payable to the Foreign Entertainers Unit by completing Form FEU 1 before the end of the return period.
Making a payment to a non-resident artist
When you make a payment to a non-resident artist, you will need to complete Form FEU 2. This comes in 3 parts.
- Part 1 : This should be sent the HMRC’s Accounts Office at Shipley together with your form FEU 1.
- Part 2 : You keep Part 2 for your records.
- Part 3 : You give this to the artist as a certificate of the payment made and tax withheld.
If you are not yet registered with the Foreign Entertainers Unit then call them on 03000 547 395 to request a Starter Pack. This contains helpful information and all the forms you will need.
When booking venues, check their policies as regards withholding taxes. All venues should deduct withholding taxes. Ensure you receive Part 3 of Form FEU 2 from the venue so that you can pass this on to your artist.