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Posted Tue, 17 Jan 2023 11:58:20 GMT by Photog29 Query
Hello! I am a self-employed photographer. Some time ago I became aware that my photos were being used without authorisation by several companies. I started working with a copyright protection company in Germany that contacts the infringers and negotiates compensation for their use of my photos. The German company keeps 40% of these compensations and transfers the rest to me. I used to live abroad until recently and according to the local taxation, I didn't have to pay tax on these compensatory payments. Now, I am back in the UK and about to file my tax return. How do I indicate the nature of these compensations, please? As pure taxable income or as something else? Thank you in advance!
Posted Fri, 20 Jan 2023 12:45:16 GMT by HMRC Admin 2

As you are a self-employed photographer, your receipts from sale or use of your photographs would normally be receipts of your trade and so included in the normal way as part of your self-employed accounts.  

BIM40051 - Receipts: general: whether trading income

In the scenario given, the question that needs to be asked is whether the payment received is on account of your trade as a photographer?

Whilst this has been called a compensation payment, it is not the name given to it that matters, but the actual nature of the payment. You have in effect engaged someone to negotiate payment for use of your photographs, albeit after they have been used.  On this basis it may well just be classed as a normal trade receipt.  

If you are actually entitled to the full amount of payment, then that should be included as you receipts and the costs of engaging the company would be allowable as a deduction (professional fees).

If the payments are correctly classed as compensation, then BIM40101 is relevant here.  

BIM40101 - Specific receipts: compensation and damages: introduction

As BIM40105 states that the receipt(s) must represent profits of the trade/profession and that if the amount received is referable to trading operations, then it would normally be a trade receipt and included in your self-employed accounts as noted above.

BIM40105 - Specific receipts: compensation and damages: is it a trade receipt?

Thank you.

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