Musicians and withholding tax: using LLPs and companies to help manage risk
For professional musicians operating internationally, a significant cost and cashflow challenge can come from withholding tax (WHT): tax being directly paid to the tax authority in the country where the performance took place.
While no business structure can entirely eliminate WHT where it legitimately arises, the use of a limited liability partnership (LLP) or limited company can help you to manage compliance risk, centralise administration and improve access to double tax treaty relief.
How withholding tax works
Many countries require tax to be deducted at source from performance fees, royalties and other entertainment income before payment reaches the artist.
Depending on the jurisdiction, withholding tax rates can range from 10% to 30% or more. US royalty payments are commonly subject to a default 30% withholding rate before treaty relief is claimed.
A UK-based musician, performer or sportsperson planning a multinational tour may face many variations in WHT and the associated processes.
This is why it’s important to understand your WHT risk in advance, and the role that LLP and company structures could play in reducing it.
Using an LLP
An LLP is often particularly suitable for bands and collaborative ventures.
LLPs provide limited liability protection while remaining tax transparent for UK purposes.
Profits are generally allocated directly to the members and taxed at their individual income tax rates.
These may range from 20% to 45% depending on the member’s personal circumstances.
The LLP can act as a central vehicle for collecting performance income, recording overseas WHT suffered and allocating foreign tax credits amongst the partners.
This can simplify admin where multiple musicians are involved in a touring business.
Using a company
A limited company offers a different set of advantages from an LLP.
Income received by a UK company is generally subject to corporation tax, currently ranging from 19% to 25% depending on the company’s taxable profits.
A company may:
- Retain profits for reinvestment
- Fund future touring activities
- Provide a more commercial structure for dealing with promoters, agents and rights holders
In certain situations, be able to claim reduced rates of foreign WHT under applicable double taxation treaties
Royalty income and WHT
Overseas royalty payments are frequently subject to WHT, often at rates between 10% and 30%. However, many UK double taxation treaties reduce these rates, sometimes to 0%, provided the recipient satisfies the treaty conditions and makes the appropriate applications before payment.
Companies, partnerships and other entities may apply for treaty relief from WHT on royalties and other specified income stream
Broader planning around WHT risk
It is important to recognise that simply interposing a company between the musician and the customer will not normally avoid WHT.
Tax authorities frequently operate anti-avoidance and lookthrough provisions (i.e. making their assessment by ignoring an intermediary or entity), particularly within the music & entertainment industry.
UK guidance concerning foreign entertainers confirms that withholding obligations may continue to apply where payments are made to an agent or personal service company if the payment relates to the underlying performance.
As a result, the most successful arrangements focus on legitimate commercial planning rather than tax avoidance.
Your WHT exposure can be reduced, and your cashflow improved, through a combination of:
- Advance treaty claims
- Reduced withholding applications
- Careful contractual drafting
- Appropriate separation of performance and production income
Ultimately, LLPs and limited companies should be viewed as business management tools rather than mechanisms for avoiding tax.
Specialist advisers can often secure substantial reductions where the correct procedures are followed before a tour commences.
How BKL can help
Our team of music specialists can help you with the entire WHT process.
Through our connections to accountants and tax advisers overseas, via the DFK International network, we can call on local support from experts in over 90 countries and territories.
By advising on proper structuring in advance of an income stream starting, combined with effective use of double taxation treaties, we can help you reduce WHT leakage, improve cashflow forecasting and achieve a more efficient international operating model, while keeping you fully compliant with UK and overseas tax rules.
For a chat about how we can help you, get in touch with Tim Gazzard using the form below.
Contact Tim
Frequently asked questions: Using limited liability partnerships and limited companies to manage withholding tax risks for musicians
How does withholding tax affect musicians who earn income overseas?
Withholding tax (WHT) is a tax deducted at source before income is paid to the musician or their business. Many countries require promoters, venues, publishers or royalty payers to withhold tax from performance fees, royalties and other entertainment income.
For internationally active musicians, this can reduce cashflow and create admin challenges, particularly where tax has been withheld in multiple countries. Although withholding tax may often be offset through foreign tax credit claims or tax treaty relief, recovery is not always automatic and usually requires careful record-keeping and advance planning.
Can a limited company reduce withholding tax on overseas royalties?
Yes, in some cases a UK limited company may be able to access reduced withholding tax rates under a double taxation treaty. Many tax treaties between the UK and other countries provide for reduced rates on royalty payments, and some treaties reduce the withholding rate to 0%.
However, treaty benefits are not automatic. The company must usually satisfy the treaty conditions and complete the relevant applications before payment is made. Simply routing income through a company does not guarantee a lower withholding tax rate.
Is an LLP a good structure for a band or musical group?
An LLP (limited liability partnership) is often well suited to bands and collaborative music businesses because it combines limited liability protection with tax transparency. Profits are generally allocated directly to the members, who are taxed individually on their share.
An LLP can also provide a central structure for managing touring income, foreign withholding taxes, expenses and tax credit allocations across multiple members. This can simplify administration and improve visibility over the band’s overall tax position.
What is the difference between an LLP and a limited company for musicians?
The key difference is how profits are taxed. An LLP is generally tax transparent, meaning profits flow through to the members and are taxed personally. A limited company pays corporation tax on its profits and may retain earnings within the business.
A company can provide greater flexibility for reinvesting profits, funding future tours and presenting a more commercial structure to agents, promoters and rights holders. The most appropriate choice depends on factors such as income levels, future growth plans, ownership arrangements and international activities.
Can musicians avoid withholding tax by using a personal service company?
No. In most cases, using a personal service company (PSC) does not automatically remove withholding tax obligations. Many tax authorities apply anti-avoidance rules and lookthrough provisions where payments ultimately relate to a musician’s performance activities.
As a result, withholding tax may still apply even if the payment is made to a company, management business or agent. Effective planning focuses on complying with tax rules and securing available treaty relief rather than attempting to avoid withholding obligations altogether.
When should musicians apply for double taxation treaty relief?
The best time to apply is usually before performances take place or before royalty payments are made. Many treaty relief procedures are far easier to implement in advance than after tax has already been deducted.
Early planning can help reduce withholding at source, improve cashflow and minimise the need for lengthy refund claims. Musicians touring internationally should review treaty opportunities well before contracts are signed and payments are scheduled.
What happens if withholding tax is deducted at a higher rate than expected?
IWhere excessive withholding tax has been deducted, it may be possible to claim a refund or offset the tax against UK tax liabilities, depending on the circumstances and the relevant treaty provisions.
However, the process can be time-consuming and may require detailed documentation from the foreign tax authority, payer or withholding agent. Maintaining accurate records of contracts, payment statements and tax certificates is essential to support any future claims.
Are withholding tax rules different for performance income and royalty income?
Yes. Performance income and royalty income are often subject to different tax rules under domestic legislation and tax treaties.
Royalties may benefit from treaty provisions that significantly reduce withholding tax rates, while income from live performances is commonly taxed in the country where the performance takes place. Understanding how income is categorised can be important when structuring contracts, managing international tours and assessing tax exposure.
What records should musicians keep to support their withholding tax claims?
Musicians should retain withholding tax certificates, royalty statements, contracts, invoices, tour schedules, payment records and any correspondence relating to treaty relief applications.
Good record-keeping helps support foreign tax credit claims, treaty relief requests and compliance reviews by HMRC or overseas tax authorities. It also makes it easier to monitor how much tax has been withheld across different territories and income streams.
How can musicians improve cashflow while remaining compliant with international tax rules?
The most effective approach is usually a combination of advance tax planning, treaty relief applications, appropriate business structuring and careful contract review. LLPs and limited companies can help centralise administration and improve visibility over international income and taxes suffered.
Working with advisers who understand the music industry, cross-border taxation and double taxation treaties can often help musicians reduce unnecessary tax leakage, avoid compliance risks and improve cashflow forecasting for tours, royalty income and other international activities.
