Royalties and Expenses

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    Are expenses deducted from royalties? I have a claim where a person has set up a recording label. At the moment the only income she has declared is a payment of royalties. She has also declared expenses for running the label.

    Are the expenses deducted from the royalties? What bothers me is that if later she declares other non-royalty income along with royalties, how do you apportion expenses for each. This problem is compounded by the fact that income from royalties are calculted in a completely different manner than normal self-employed income. Do we have to ask for expenses for each if expenses are allowed to be deducted from royalties.

    On a related matter, are royalties and other self-employed income to be entered separately on the system as different incomes? Or should the other self-employed income and royalties be lumped as one self-employed income, the royalties amount dropping off after the end of the calculation period?

    Kevin D

    Given that Royalties are unquestionably earnings, HBR 38 must surely apply in the absence of any exception. Therefore, in principle, expenses must be allowable.

    However, a qualification follows… Are the Royalties and recording label part of the same business? If so, no need to distinguish between what expenses are for what. But, if there are effectively two different businesses, I think the expenses in respect of “A” cannot be deducted from “B” and vice-versa.

    As to how you judge how many businesses are in place, well, good luck…


    The treatment of royalties in HB and CTB is a real mess. The prescribed method is completely at odds with all normal principles of self-employed earnings:

    – each payment is handled individually instead of being totalled up for the whole assessment period
    – the idea of estimating future earnings from a past assessment period does not really seem to work under this method
    – assuming that expenses are deductible (and surely they must be – royalty income does seem to be a subset if self-employed earnings generally) how can the expenses be attributed to a period that matches the income?

    The treatment of royalties in working age HB/CTB is borrowed from IS/JSA/ESA. The idea in those benefits is that irregular and unpredictable payments should disqualify you from IS/JSA/ESA until the money has run out: you are basically treated as spending the money at a rate equal to the benefit you would otherwise have got. But with the HB/CTB taper, the means-test operates differently.

    All I can suggest is that you calculate expenses over an assessment period as for any self-employed case, then sit and wait for royalties to be paid. Unless and until there is a payment, do not use any self-employed income at all [but do apply surplus child care/30 hour disregards to tax credit income if appropriate]. As soon as there is a payment of income during the award, offset the expenses for the assessment period against that income until all the expenses have been used up. Then finally start using the income in the prescribed manner after there are no expenses left. Reassess expenses at the scheduled intervention date as for any self-employed case.

    Kevin D

    [quote:e29d122efe=”Peter Barker”]The treatment of royalties in HB and CTB is a real mess. [/quote:e29d122efe]

    Completely agree. And it would be so simple to deal with. Most Royalty payments are paid in 3-month / 6-month / yearly amounts. Surely the sensible way forward is to treat such payments as income for an equivalent period from the date such payments are payable? In short, change it so that if a quarterly payment of Royalties is payable today, it counts as earnings for the 3 months starting today, and so on.

    Whoever came up with HBR 37(3)&(4) must have been on some kind of pharmaceutical substances. It’s bonkers.

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