Thinking of Incorporating Your Music Business? Make Sure Your Copyright and Royalties Are Structured Correctly

If you're a musician thinking about moving from a sole trader to a limited company, there's one area that's often overlooked; and it could become an expensive mistake.

Many musicians assume that once they've incorporated, everything automatically transfers to the company.

Unfortunately, that's not always the case.

We're seeing increasing signs that HMRC is taking a closer look at how royalty income is reported, particularly where musicians have incorporated their businesses. With more data than ever available to HMRC, it's becoming increasingly important to make sure your structure reflects the reality of how your music rights are owned.

HMRC's growing use of data

HMRC regularly runs what are known as 'nudge campaigns'.

Rather than opening formal investigations immediately, they use data from various sources to identify potential inconsistencies and encourage taxpayers to review their affairs.

In the music industry, HMRC receives information from organisations including:

• PRS for Music

• MCPS

• PPL

This information can then be compared with what is reported on Self Assessment tax returns or Corporation Tax returns.

If something doesn't appear to match, HMRC may ask questions.

Incorporating doesn't automatically transfer your rights

Setting up a limited company is an important milestone for many musicians.

It can bring commercial and tax advantages, but incorporation alone doesn't automatically transfer ownership of your intellectual property or the right to receive all future royalty income.

Depending on your circumstances, formal legal documentation may be required to transfer certain rights to your company.

This is where many people unintentionally run into problems.

Understanding PRS writer and publisher shares

One area that frequently causes confusion is PRS income.

In broad terms:

• Writer shares generally remain attached to the songwriter and are not usually assignable to a limited company.

• Publisher shares may be payable to a publisher, including, in some circumstances, a limited company that has been correctly established as the publisher within your PRS arrangements.

This distinction is important because it affects where income should be reported and who is entitled to receive it.

Every situation is different, so it's important to understand how your own rights have been structured before assuming all royalty income belongs within your company.

Common mistakes we see

When musicians incorporate a music business, some of the most common issues include:

• Assuming incorporation automatically transfers copyright.

• Not formally assigning intellectual property where appropriate.

• Reporting royalty income through the wrong entity.

• Not understanding how PRS, MCPS and PPL income should be treated.

• Failing to review existing publishing arrangements after incorporation.

These aren't always deliberate mistakes; they're often the result of assuming that incorporation takes care of everything automatically.

Why this matters now

With HMRC increasingly able to compare information from royalty collection societies against tax returns, inconsistencies are becoming easier to identify.

That doesn't necessarily mean you've done anything wrong.

But it does mean it's worth reviewing your current structure to make sure everything has been documented correctly and your tax reporting reflects the legal ownership of your rights.

Thinking about incorporating a music business?

If you're planning to move from sole trader to limited company, or you've already incorporated, now is a good time to ask yourself:

• Have my intellectual property rights been properly reviewed?

• Have any necessary assignments been completed?

• Does my PRS structure reflect my current business?

• Am I reporting royalty income in the correct place?

Taking the time to get these foundations right now can save a great deal of time, cost and stress later.

If you're unsure whether your current structure is correct, we'd be happy to work with you to help you review it.