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HMRC internal manual

VAT Time of supply

From
HM Revenue & Customs
Updated
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Tax points for specific types of supply: Royalties and repeat fees

Introduction

The granting, assignment or surrender of the whole or part of any right is a supply of services. These supplies can take various forms and it is therefore important to first establish what is actually being supplied before the tax point position can be considered. Most commonly, a supply of rights involves the granting of a licence that specifically permits the licensee to do something in connection with, say, a copyright or patent held by the licensor. Examples include the types of licences issued by the Performing Rights Society Limited and Phonographic Performances Ltd. Alternatively, a supply can take the form of a permanent, outright assignment or surrender of the rights. This often occurs in the case of recording artists when they make a recording for a record company, or actors performing in a television or radio production. The impact of the tax point rules vary depending on the circumstances.

Licences

Licences will normally be issued for a period of one or more years and will often be renewable. Alternatively they may be issued for the life of the copyright or patent. Where a licence is issued for a single payment, the supply is a single supply of services. The basic tax point occurs when the licence is granted. Where the licence agreement provides for payments to be made periodically, or from time to time, the service may be treated as a continuous supply to which regulation 90 of the VAT Regulations 1995 applies (see VATTOS9150). A tax point is therefore created each time a payment is received or a VAT invoice is issued by the licensor, whichever is the earlier.

Permanent assignments

A permanent transfer of rights is normally a single supply of services to which the normal tax point rules apply. The basic tax point occurs at the time the rights are assigned. Very often the contract will provide for the person assigning the rights to receive future periodic payments of royalties, or repeat fees and the like, based, for example, on the level of subsequent sales or repeat broadcasts. Regulation 91 of the VAT Regulations 1995 (see VATTOS2360) applies wherever some, or all, of the consideration is dependent on future events. This overrides the basic tax point rules and restricts the time of supply to the earlier of the receipt of payment or the issue of a VAT invoice. Unusually for the time of supply regulations, a tax point created under regulation 91 creates a further time of supply for the original supply. This means that the liability is determined by the rate that applied to that supply at the time the rights were originally assigned. This means, for example, that where assignment of the rights took place prior to the introduction of VAT, no VAT is due on any royalties that might still be received.