Date of issue: 13th July 2004

The Challenges of Wealth Management

Tax compliance, VAT advice, investment strategies, image rights abuse and income tracking are all in a day's work for accountant Michael Meakin, who is a specialist adviser to people in motorsport and the entertainment industry.

Michael, a partner with chartered accountants Clement Keys, Birmingham, looks after stars' current and future financial interests during what can be a high profile, but short-lived career.
Accounting for a variety of sources of income - such as record company royalties, song-writing fees, income from radio airtime and appearance money - is one of the most complex aspects of Michael's work. Long lead times before royalties are received puts pressure on cash flow, while the auditing of record companies is an essential part of collecting fees.

"Rock bands don't issue invoices - the record company tells me how many copies of the group's latest CD it has sold and presents me with a cheque for royalties. It is then my responsibility to conduct an audit, balance the figures and ensure the correct royalties are paid," says Michael.

When 'high fliers' earn income abroad and own several homes around the globe, their tax affairs can be extremely complex. The question of where someone is classed as a resident for tax purposes is important because each country has its own rules governing when someone is deemed to be a resident, and therefore subject to that country's tax regime, as well as different rates of taxation. Stars with several homes are careful not to become liable for tax in more than one country and, ideally, seek to become tax resident for their total income in the country with the lowest rate of tax.

Income derived from activities in different countries - often in conjunction with overseas associates and sponsors - has to be balanced between several tax territories. Specialists, like Michael, have to be aware of special tax reliefs and take into account how they are treated for different industries.

Despite harmonisation in many areas, tax legislation across EU member states is little short of a minefield. Each country has different tax rates, VAT rates, levels of compulsory registration for VAT, rules for clearing withholding tax and rates of withholding tax - all of which serve to further complicate auditing and compliance. Imagine the VAT issues in cross border transactions involving a racing driver who drives for a French team, competes in a European series in eight different countries, but not the UK, and is employed by his own UK limited company which is itself sponsored by a UK firm and a German car manufacturer!

Their lifestyle is such that the majority of entertainers open accounts with specialist banks and Michael Meakin recently helped The Darkness transfer to Coutts. Since David Beckham and his like can hardly take a stroll to their local ATM when they run out of cash, specialist banks assign managers who will, for example, arrange to deliver cash or foreign currency to the artist's home by courier.

If allocating responsibilities within a big name entertainer's 'entourage' is difficult, so is paying everyone. Promoters are often remunerated by way of a deduction from performing fees while managers are traditionally paid a commission on the star's earnings. The technical aspect is where this commission is applied: a lot of pop groups agree a standard commission rate on publishing and recording sources, while touring income is commissioned at a much lower rate. Everyday financial administration is the responsibility of the personal manager or accountant and Michael Meakin has taken charge of everything from renewing road fund licences, organising passports and opening children's building society accounts to ordering foreign currency and updating insurance policies.

Dealing with the affairs of, say, a four-piece rock group - collectively and separately - is one of the most difficult aspects of Michael's job, as each of the artists he has ever worked with has had a different commercial structure from the others. While the aim is to keep the arrangements simple, the very nature of the work and numerous sources of income involved tend to conspire against this.

If four members of a group agree a percentage contribution to all songs written on an individual song basis, for example, income from each different song has to be analysed relative to its sales. However, even if the income is accounted for on an equal basis between the four band members, they will also receive certain types or proportions of income separately, for instance as the Performing Rights Society usually attributes a proportion of the income to the individuals personally.

It is clear that maximising all sources of income is essential for people who earn millions in a career that may span only six or seven years. While many stars safeguard their wealth by investing in property, building a diverse investment portfolio is a priority when a few years of high income have to be offset against a much longer period without funds, or at least with substantially lower earnings.

You might expect that Michael's work is finished once his clients retire - not so. While some stars take advantage of special Inland Revenue dispensation when planning their retirement -lower normal retirement ages exist for racing drivers, dancers and certain musicians - many develop second or third careers and continue to require his expertise.