The UK’s Foreign Entertainers Unit (FEU) is a specialist division of HM Revenue & Customs (HMRC) that oversees tax payments for non-UK performers, artists, entertainers, and sportspersons who perform in the UK. The FEU ensures that non-residents who perform in the UK pay income taxes on earnings arising from their activities.
Per the Foreign Entertainers Legislation, UK payers who pay individuals involved in performance must withhold 20% of the payment and submit it to HMRC. The advance payment is used toward the individual’s final tax bill within the UK.
What Should I Know Before Going to the UK?
By the Foreign Entertainers Unit Legislation, regardless of any overseas entity/loan out company, you may use or even a UK corporate entity; HMRC will look through the corporate entity and the performer will be taxed in the UK as per the UK individual tax bands of which the top rate of tax is 45% of net income on profits over £125,141.
Over the years, we have had numerous discussions with overseas business managers/accountants. Some believe it’s better to do nothing and pay 20% on gross income
rather than potentially 45% on net income. However, this is not sound advice. If an artist fails to mitigate their UK taxes, HMRC will eventually catch up with the performer, potentially issuing a UK Tax return for the relevant year. This could be many months or even years after the end of the UK Tax year, April 5. Failure to declare the excess could result in penalties, fines, and interest being charged, in addition to any additional taxes due.
Another choice for performers and athletes to make overseas is to apply for a “Reduced Rate Application” with the FEU unit of HMRC in advance of their performance.
Who Can File a Reduced Rate Application with the FEU Unit of HMRC?
Any non-resident who earns a performance income in the UK is subject to tax in the UK. Individuals under the FEU rules include TV and film actors, touring bands, musicians, athletes, dancers, and similar personalities. A performance may be alone or with others.
Some examples of performances and activities include:
· Concerts
· Filming scenes for a movie in the UK
· Competing in a golf or tennis tournament
· Playing a musical instrument in an opera
Generally, any non-UK resident’s performance is subject to FEU rules.
What Performance Income is Subject to UK Tax?
Any payment related to a UK performance or event is subject to UK income tax. Some examples of related payments include:
· Performance fees
· Sponsorships
· Tour support
· Earnings from appearances on TV and radio
· Deferred payments
· Contingency payments
· Residual payments
· Tournament winnings
· Advertising income
· Endorsement fees
· Complimentary tickets
· Merchandising income
What Expenses are Allowable Deductions for UK Tax?
Examples of Allowable Deductions may include:
· Production costs
· Crew expenses, per diems
· Band salaries, per diems
· Accommodation
· Flights between the UK and your home country
· Management, lawyer, and agency commissions
· Accountancy fees
· Rehearsal expenses
HMRC disallows certain deductions, including personal security, flights not between the home country and the UK, personal trainers, and medical personnel. Other disallowable deductions include family costs unless family members play a role in the performance and insurance for cancellation or terrorism. However, it’s worth considering that these costs may still be allowable in your home territory.
If HMRC accepts your application, HMRC will authorize a tax deduction calculated on your net profits rather than a flat 20% withholding on your gross income.
Submitting an FEU application generally negates the need to file a UK tax return. However, on some occasions, HMRC will still issue a tax return even though you have filed a successful FEU application.
De Minimis Payments
If your payment falls below the current de minimis amount of £12,570, agents are not obliged to withhold and submit the basic tax deduction to HMRC. In that case, you must submit a timely tax payment in accordance with income tax deadlines.
What if You Do Not Submit an FEU Application? But the Gross Deduction is Higher than the Tax Due on Net Profit.
This can happen when the 20% withholding on gross income is higher than the actual tax due on your net profits. In these circumstances, an individual can request a refund application after the end of the tax year or request for a UK personal tax return to be issued.
Reporting Requirements and Deadlines for FEU Reduced Rate Applications
Prager Metis recommends that performers initiate the application process at least 60 days before their payment date. This allows HMRC to review the application and submit any queries before finalisation. If payment occurs during peak summer months, a 90-day advance application is recommended.
To apply, you must provide supporting documentation of projected income and expenses. Supporting documentation may include contracts for the performance, sport, TV, and film events, estimated budgets for the UK, invoices and quotes, and dates of your scheduled arrival and departure.
Prager Metis can prepare your application using the supplied documentation. We will submit the application and interface with HMRC FEU authorities to facilitate the process.
Common Pitfalls and How To Avoid Them
The most common mistake is failing to submit a reduced rate application before the performance or appearance payment. The FEU will not accept reduced-rate applications made less than 30 days before the final payment date.
Failing to make an FEU application and there is more income tax due than the 20% on gross already deducted and failing to declare these taxes to HMRC and pay taxes by the due dates may result in fines, penalties, and interest in addition to the additional tax owed.
Tax Implications in the Entertainer’s Home Country
Many countries allow performers to deduct their UK income tax from their home country’s income tax liability. A withholding tax credit may help to mitigate double taxation on their income from foreign sources. A tax advisor in your home country can inform you of your domestic tax requirements.
The Importance of Expert Guidance
As cross-border tax issues can be quite complex, having a team of international and domestic advisors who can explain your obligations and available tax strategies is critical. The Prager Metis Entertainment & Music Group provides international services for overseas and UK entertainers, athletes, TV & film actors, and dancers. Our team can assist you in mitigating your UK tax liability for future UK performances. Contact Mark Carter at mcarter@pragermetis.com for questions concerning UK tax obligations for performers.
