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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Authors and literary profits: receipts

Where the author etc. is chargeable to Income Tax on the profits of a profession, the profits are to be computed inclusive of all receipts from copyright and other sources, including lump sums received for the outright assignment of copyright (for example the assignment of copyright as a whole, or of serial rights or of rights in particular editions, or of film, television or radio rights). This is because the author’s brain is his or her fixed capital. Copyright is a product of the author’s brain. It is circulating capital and exploiting it gives rise to income. Similarly sales of manuscripts give rise to income (Wain v Cameron [1995] 67TC324). For more on the capital/revenue divide as it relates to authors, see BIM35725 - BIM35735.

Where the author’s income is chargeable as miscellaneous income, the profits should be similarly computed, except that lump sums received for the assignment of copyright only (see Nethersole v Withers [1948] 28TC501), as distinct from lump sum and similar payments associated with services (see Hobbs v Hussey [1942] 24TC153, and Housden v Marshall [1958] 38TC233), should be excluded. In this connection:

  • a lump sum does not include a sum received on account of royalties or an amount arrived at by reference to a minimum or estimated number of copies of a book or performances of a work;
  • an assignment, that is a transfer of ownership of a copyright, should be distinguished from a licence which permits the licensee to use copyrighted matter but does not involve any change in the ownership of the copyright;
  • a lump sum payment not chargeable as miscellaneous income should be considered for Capital Gains Tax liability.

If, in an assignment case, the question of liability to Income Tax turns on whether or not a profession is being exercised, consideration should be given to the taxpayer’s activities both before and after the assignment.