Creative Industries and Agencies Tax Case Studies

Cases reviewed by Hussein Bhaiji FCCA CTA, Managing Partner. Last updated October 2026.

Agencies and creative industries businesses have their own tax rules, and most general practice accountants meet them once a decade: IR35 size tests, foreign entertainer withholding, media buying as principal or agent, and the cultural VAT exemption. These six real cases show what specialist knowledge was worth.

In several of them the client’s own paperwork, whether a contract, a board structure or an invoice layout, was what created the liability. Fixing the documents fixed the tax.

The engager that had the IR35 size test wrong

The issue. A consultant working through his own limited company was told by the engager, his end client, that the off-payroll rules no longer applied, because the client had become small under the new company size thresholds that took effect in April 2025. On that basis the client stopped issuing status determinations and started paying the company gross. HMRC opened an employer compliance review.

What we did. The thresholds did increase, to £15m turnover and £7.5m balance sheet total with the employee test unchanged at 50. But the off-payroll size test looks at the last financial year for which the accounts filing period ended before the start of the tax year. The first financial years under the new thresholds begin on or after 6 April 2025, so they do not feed through until 2027/28. Nor does the two consecutive years rule push it back further, because a transitional provision treats the new thresholds as having applied in earlier years too (regulation 3 of SI 2024/1303). The engager had applied them nearly two years early.

That mattered, because the size test decides who carries the liability. With the rules still applying, responsibility sat with the engager, not with our client’s company. We set that out, and separately dealt with the status position on its merits using the actual working practices rather than the contract alone. We also made sure the set-off rules introduced in April 2024 were applied, so that the tax and National Insurance the company and the director had already paid were credited against any PAYE liability rather than the same income being taxed twice.

The outcome. The liability stayed with the engager, our client’s company was not assessed, and the engagement continued on a properly documented basis.

A touring artist’s foreign entertainer withholding cut before the money moved

The issue. A non-resident performer was booked for a UK tour. The promoter was obliged to withhold tax at the basic rate of 20% from every payment, calculated on gross fees. On a tour grossing £680,000 against thin margins, that meant £136,000 withheld against a real UK liability of a fraction of that, recoverable only through a return filed the following year.

What we did. There is a formal route to reduce the withholding before it happens, but it has to be used in advance. We prepared an application to HMRC’s Foreign Entertainers Unit with the contracts, the tour budget and a supported schedule of the costs actually incurred in earning the UK income, and filed it more than 30 days before the first payment was due. We also dealt with the part most people miss, which is that the rules reach endorsement, sponsorship and merchandising income connected with UK appearances, not just the appearance fee, and that the entertainer is taxable on that income even where the payment is made to an offshore company by a payer with no UK presence, which is what the House of Lords decided in Agassi v Robinson [2006] UKHL 23. We apportioned the worldwide endorsement income on a day-count basis and kept the diary evidence to support it.

The outcome. The withholding was reduced to £31,000, releasing £105,000 of cash into the tour at the time it was needed rather than fourteen months later. The promoter’s quarterly returns were filed on time and no interest arose.

A music catalogue and a film library, and why they get tax relief in different ways

The issue. A media group acquired a back catalogue of master recordings and, separately, a library of films. Its accountant amortised both in the accounts and claimed corporation tax relief on both. The corporation tax returns for two years had been filed on that basis.

What we did. The corporate intangibles regime broadly gives relief following the accounts, but it carves out master versions of sound recordings altogether, except as regards royalties. So the music masters sat outside the regime and could not be relieved by following the amortisation in the accounts. For a company trading in its catalogue, the cost is revenue expenditure under section 150 of the Corporation Tax Act 2009, and section 151 requires it to be allocated to each period on a just and reasonable basis by reference to the value realised in that period. The straight-line amortisation claimed in the returns did not follow that pattern, so the returns were wrong and had to be corrected. Films are the opposite way round. The exclusion for films in section 812 of the Corporation Tax Act 2009 now reaches only films that began principal photography before 1 January 2007 and film masters acquired before 1 October 2007, so a film library bought after that generally does fall within the regime and does attract relief, which the client had not appreciated was on a different footing. We also separated the publishing and copyright interests from the masters, because they are different assets and can fall the other way, and we checked the acquisition dates against the July 2020 commencement change and the restricted asset rules for related-party acquisitions.

The outcome. The music relief was re-allocated on the section 151 basis and corrected voluntarily before HMRC found it, which kept penalties at nil. The film library relief was confirmed, and further relief was found on the music publishing and copyright interests once they were separated from the excluded masters, worth £96,000 in corporation tax.

The paid trustee who cost an orchestra its cultural VAT exemption

The issue. A charitable orchestra that also promoted its own concert season had treated ticket income as exempt under the cultural exemption for years. It then began paying one of its trustees for services. HMRC reviewed the position and assessed £240,000 of VAT on a full season of ticket sales.

What we did. The exemption for admission to cultural performances is only available to an eligible body, and one of the conditions is that the body is managed and administered on an essentially voluntary basis by people with no financial interest in its activities. It is a condition about governance, not about culture. The majority of the Court of Appeal in Bournemouth Symphony Orchestra v HMRC [2006] EWCA Civ 1281 held that paying someone a proper rate does not by itself give them a financial interest, but that a paid individual taking part in top-level decision-making stops the management being essentially voluntary. So the risk here was not the payment as such. It was that a paid person sat on the board and took part in running the organisation, and that alone can remove the exemption for an entire season.

We reviewed the payments, the governance documents and the actual decision making, restructured the arrangement so that the individual stood down as a trustee before doing any further paid work, and negotiated the assessment down to the periods where the condition genuinely was not met.

We also flagged a second exposure the client did not know about. HMRC treats admission to live and encore screenings of performances in cinemas as outside the exemption, a view the First-tier Tribunal supported in Derby Quad Ltd v HMRC [2023] UKFTT 904 (TC), a theatre case that applies equally to relayed concerts. The orchestra’s paid online streams were standard-rated in any event, because they are not admission to a performance at all.

The outcome. The assessment was reduced to £78,000, the exemption was secured going forward, and the screening and streaming income was correctly treated as standard-rated from the point we identified it rather than four years later.

A media agency treated as principal, and what it did to its turnover

The issue. A digital media agency billed £3.4m a year, of which £2.6m was media spend passed through to publishers. It had always treated the gross figure as its own turnover. That took it well past the cash accounting limits it would otherwise have qualified for, distorted every turnover-based measure its bank and its insurers used, and made the reported margin look a fraction of what it actually was.

What we did. Whether an agency is principal or agent on media spend starts with the contracts, read as a whole, and then turns on whether that reading reflects the economic reality, tested against a set of indicators: who has title, who knows the value, whether the agent’s fee is separately identified, and whether the agent can alter the nature or value of the underlying supply. What the contract calls the parties carries little weight, as the Supreme Court confirmed in Secret Hotels2 Ltd v HMRC [2014] UKSC 16. We reviewed the client contracts and the publisher terms, restructured the ones that could genuinely be run on a disclosed agency basis so that the client contracted with the media owner and the agency charged commission, and left the rest as principal where the commercial reality required it. We also dealt with the volume rebates the agency received from media owners, which had been netted off quietly and needed to be brought into account properly.

The outcome. Turnover as reported fell from £3.4m to £1.1m, with about £0.3m of media spend still billed as principal where the commercial terms required it, bringing the company back inside the cash accounting limits and giving accounts that finally showed a margin reflecting how the business actually works. The VAT position was corrected without an assessment.

VAT on stock images, print and freelancers recharged as “disbursements”

The issue. A creative studio itemised third-party costs on its invoices as disbursements and did not charge VAT on them: stock photography, print, freelance production and research reports. Several of its clients were charities and partly exempt businesses that could not recover all the VAT they were charged, so the treatment mattered to them commercially. HMRC assessed £67,000.

What we did. A disbursement has to meet eight conditions, and the one that fails almost every time is that the client, not the agency, must have used the goods or services. Where the studio buys a stock image and puts it into the artwork it is delivering, it has used that image itself. The eight conditions are set out in HMRC’s own guidance, and the First-tier Tribunal decision in Brabners LLP v HMRC [2017] UKFTT 666 (TC) illustrates the point neatly: recharging at cost and itemising it separately does not make something a disbursement.

So the assessment was right in principle. We limited it where genuine disbursements existed, disclosed the balance in full and secured the maximum reduction for the quality of that disclosure, bringing the penalty down to the 15% minimum for a careless inaccuracy disclosed after HMRC’s prompt, and then did the work that mattered for the client relationships: repricing the charity accounts so the VAT was built into the fee rather than appearing as a surprise, and checking which of the studio’s digital advertising work for charities could be zero-rated in its own right.

The outcome. The assessment was reduced to £41,000, and the penalty of £6,150 (15% of £41,000) was suspended by HMRC under paragraph 14 of Schedule 24 to the Finance Act 2007 rather than paid. The charity work was restructured so that the zero-rated advertising elements were separately identified, saving those clients £12,000 a year.

Could we do the same for you?

Most of the cases above started the same way: someone asking us to look again at a position another adviser, or the other side, had treated as settled. Merit is dual qualified. We are Chartered Certified Accountants and Chartered Tax Advisers, our team includes professionals who have worked inside HMRC, and our partners have built their own businesses from nothing to over £1m in turnover. In most cases the tax we save exceeds the fee we charge.

Related services: Accountants for creatives and entertainment businesses · Advertising and marketing accountants · Contractors and freelancers · Tax advisory services.

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