As a basic rule, withholding tax is required to be paid by any promoter or individual (payers) who makes a payment to a non-resident artist for any UK appearance. There are some exceptions, but they are limited. Any foreign entertainer or sportsperson appearing in the UK, is subject to the UK’s withholding tax regime, which will be administered by the ‘Foreign Entertainers Unit’ (FEU) – a specialist unit at HM Revenue & Customs. Generally speaking, the foreign entertainer tax rules apply to any entertainer appearing or performing in the UK.
How much tax is paid?
The amount of withholding tax applied at source under the FEU regime is currently 20%, this payment acts as a payment on account of the final UK tax liability and does not take into account any allowable deduction or expenses incurred. The withholding tax should be deducted by payers and, in some cases, Self-Assessment returns will be required from individual entertainers or sports persons. This default regime can result in excessive amounts of tax being paid or too little tax, which ultimately could result in unexpected demands for additional UK taxes. It is possible to make an application to reduce the amount of withholding tax applied to the gross income, which is discussed further.
Are there any exemptions?
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 £11,850 for the 2018/19 tax year).
Can I reduce the amount of withholding tax?
It is possible to make an application to the FEU to vary the amount to deduct other than the 20% basic rate of tax.
The reduced rate application discloses the gross UK income and claims all allowable deductions. It is necessary to provide evidence to support the amounts disclosed, such as performance contracts and invoices for expenses incurred.
You would need to demonstrate to HMRC that the final liability of the artist to UK tax will in reality be lower than the blanket 20% rate. For example, you may be able to agree that the considerable expenses associated with touring will substantially reduce the income of the artist.
HMRC generally accepts that the following expenses may be deducted from gross income, resulting generally in quite a significant reduction 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.
This list is not exhaustive but is dependent on the individual circumstances of the artist.
The application should normally be sent in advance (30 days before) of the first performance. Once the final liability has been agreed, the FEU notify the payer the adjusted amount of tax to withhold, together with a rate of tax to be applied if there is any overage or additional fees paid.
The Reduced Rate Tax Application provides certainty over the UK tax liability and removes the obligation for the entertainer to file a final UK self-assessment form.
UK Tax Return (Self-Assessment)
The alternative to making a reduced rate tax application is to accept the default 20% withholding tax charge and then if appropriate file a tax return under self-assessment. This strategy can be beneficial, especially in cases where the guarantee/income is anticipated to be very high as it defers the payment of additional tax liabilities. It should be noted that the FEU normally insist that sports persons prepare a UK Tax Return, and they are not able to make a reduced rate tax application.
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 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.
It must be stressed each individual case is different and will naturally result in different end results being achieved. This summary is only a broad outline of the rules and regulations in respect of foreign entertainers, is for discussion purposes only, and should not be relied upon as formal advice.
If you’re an entertainer and would to talk to me about this, I am available on 020 3146 1607 or firstname.lastname@example.org. I’m also available on LinkedIn if you would like to connect with me there. In the meantime you can follow our Facebook or Twitter page for more tax tips.