The Art of Tax : Averaging for Creators of Literary or Artistic Works

If you are an author or artists, managing your cash flow and keeping your tax liabilities down is crucial.

As you focus on creating your literary, dramatic, musical or artistic works you may have little or no income in a tax year.

This could be followed by a tax year when royalties are earned or you sell a piece of work and profits are good, meaning a large amount of tax is due.

Some might say “that’s life”.

However with the right tax advice it doesn’t have to be.

Creators of literary and artistic works that meet certain criteria are able to average their profits for successive tax years.

This can help reduce their total tax bill for the two tax years concerned, ensuring precious tax free allowances and lower tax bands are not wasted in the year that there is no income.

In order to qualify your profits must fluctuate from one year to the next year by at least 25%.

Averaging will only help you if the top rate of tax that you pay is different for each of the 2 years. For example, averaging:

  • will not help you if you pay higher rate tax (40%) each year
  • may help you if you pay tax at the basic rate one year and higher rate the next
  • may help you if you are liable to tax one year but your income falls so you are not liable the next

 

In the right circumstances, this is a very valuable relief which has been established to help the UK’s creative talent manage thier finances and tax bill.

If your profits are wholly or mainly derived from literary, dramatic, musical or artistic works or designs and you would like to discuss further please call us on 020 8037 1052 and speak with Jamie Favell or Matt Dede.