Averaging: creative works
S221 Income Tax (Trading and Other Income) Act 2005
A trade, profession or vocation qualifies for averaging if the taxpayer’s profits from it are derived wholly or mainly from creative works.
HMRC regards the test as satisfied if more than 50% of the profit is derived from qualifying creative works.
Creative works are defined as, literary, dramatic, musical or artistic works or designs created by the taxpayer personally or, if the qualifying trade, profession or vocation is carried on in partnership, by one or more of the partners personally.
Generally these are works which are intellectual property of the creator and protected under UK or foreign law.
Profits may be derived by allowing others to reproduce the creative works, for example authors’ royalties or advances on royalties, or by outright sale.
Someone who is providing a service, for example professional advice, will not qualify as their income is derived from services rather than from creative works.
The work may be physical property, for example sculptures or paintings, but the relief does not apply to profits derived from works of craft, for example furniture making or dress making.
Because of the requirement that the taxpayer or their partners create the work personally, the relief does not apply to people who manage the creation of work created by employees or others who are not partners.