Taxing Matters

Q – Aidan from Edinburgh asks, if his band get an advance which is expected to cover them until they do another album, in say two years time, is this regarded as an advance for this year only or can they spread it as income over the two years?

A – Advances, and all income for that matter, is taxable in the year in which it is receivable. An advance is paid on a specific date as identified in your recording contract, for example, on signing the contract, on completion of the album, on delivery of the master to the record company and so on. So the record company is contractually obliged to pay advances on these specified dates and will be in breach of the contract if they don’t adhere to them. In order for you to legitimately postpone the payment of an advance you would have to insert some contractual reason for the postponement into the contract. But as you’ve already fulfilled all of your obligations under the contract in relation to that album, and the album is now finished and delivered, so the record company are obliged to pay you your full advance.
I can only comment on the Irish tax regime and the current Irish income tax rates of 20% and 42% have been in existence since 2001. The only advantages from spreading the advance over two years are, you will get two years' personal tax credits use against your income tax liability, two years use of the lower rate band of €29,400 and your preliminary tax would be spread over two years' rather than one.
I would hope that the recording advance would not be your only source of income between albums. Presumably you will be touring and doing festivals to promote the album for which you will get paid and you should also generate income from merchandising. On top of these you may also have a publishing deal that will also provide you with an advance and this advance will be income tax exempt if you get Artists Exemption (this Artists Exemption is only available to individuals who are resident in Ireland for tax purposes). So you shouldn’t be completely dependent on the advance from the record company to live on. And if things really work out, hopefully the album itself will be a success so it will generate income in excess of the advance and therefore you will be receiving further payments from the record company.

Answers supplied by O.J. Kilkenny and Co. Chartered Accountants, specialists in the entertainment industry. Contact: [email protected] or call Alan Duffy (01) 661 1588.