Copyright Complications

This must be done before any income generated from these copyrights can be recognised as income belonging to the company. Unfortunately, this process potentially carries some unfavourable UK tax implications that need to be carefully understood before proceeding.

HMRC view the transfer of copyrights from an individual author to their company as income tax and not a capital gain. As the Author is usually connected to the limited company, the transfer will take place at market value. This value will trigger an income tax charge for the author in the year that the transfer takes place.

So if an author transfers copyrights over to a company, they could face a substantial income tax bill up front since it's taxed at normal income tax rates of:

• 20% basic rate
• 40% higher rate
• 45% additional rate

The company does get tax relief for the cost of acquiring the copyrights by amortising the amount over a 3-5 year period to reflect the life of the copyrights. This provides corporation tax deductions against future royalty income.

Depending on the authors circumstances, the initial income tax hit could easily outweigh any potential savings. In recent years the tax implications of taking large sums out of the company works out worse that if the author had just kept the copyrights in their own name. There is also the hassle of operating a company as there is far more compliance and restrictions on certain types of expenditure that could trigger taxable benefits.

Professional advice is critical before taking this route to understand the potential tax costs involved. Advice should be sought, ideally before any offers from publishers are on the table, as the offers will directly impact on the market value.