How Should Musicians Report Royalty Income on a UK Tax Return?

Sinéad Pratschke
3 days ago
2 min read

Understanding the difference between active and passive royalty income

Royalty income is one of those areas that feels straightforward - until it isn’t.

For UK Self Assessment purposes, royalty income can be treated in two very different ways, depending on whether it’s:

Part of an ongoing self-employed trade, or
A passive income stream from past work

Understanding this distinction is crucial, not just for getting your tax return right, but also because it can affect whether you fall within Making Tax Digital for Income Tax (MTDfIT).

Royalty Income Can Be Active or Passive

The key question HMRC looks at is whether the royalty income is part of an active trade.

Active Royalty Income

Royalty income is usually considered active where:

You are still working as a musician
The income relates to ongoing self-employment
You are actively exploiting your work (recording, performing, licensing, promoting)

In this case, royalties are normally included as part of your self-employment income on your tax return.

They form part of your turnover and are taxed in line with your trading profits.

Passive Royalty Income

Royalty income is more likely to be passive where:

You are no longer actively trading as a musician
Your self-employment has ceased
The income arises from work done earlier in your career
You have little or no ongoing involvement

A common example would be a retired musician who still receives royalty payments from recordings made many years ago.

In this situation, royalties are generally declared as “other income”, rather than as part of self-employment.

Why This Distinction Matters for Making Tax Digital (MTDfIT)

This classification has become particularly important with the rollout of Making Tax Digital for Income Tax.

For MTDfIT purposes, HMRC looks at your qualifying income, which includes:

Turnover from self-employment
Income from land and property

Importantly:

Passive royalty income declared as other income does not count towards the MTDfIT income threshold

This means that incorrectly including passive royalties as self-employment income could:

Push you into MTD unnecessarily
Increase reporting obligations
Create avoidable compliance issues

Getting the categorisation right can therefore have practical, ongoing consequences - not just a tax calculation impact.

How to Decide Where Your Royalty Income Belongs

When deciding how to report royalty income, ask yourself:

Is my self-employment still active?
Am I still working as a musician in any meaningful way?
Do these royalties arise from current activity or historic work?
Do I have ongoing involvement, or does the income simply arrive periodically?

If the income:

Forms part of an ongoing trade → self-employment income
Is detached from current activity → other (passive) income

There’s no single rule that applies to everyone - context matters.

Key Takeaways for Musicians

Royalty income can be active or passive for tax purposes
Active royalties are usually part of self-employment
Passive royalties are typically declared as other income
Passive royalty income does not count towards the MTD for Income Tax threshold
Correct categorisation helps ensure compliance and avoids unnecessary reporting