My mantra as an accountant, for my clients?
Be Legal, Be Smart, Be Brave!
Be proud of what you’ve achieved in your writing.
Be professional in all your business.
Don’t get caught out not declaring income.
Be aware of what you’re entitled to claim.
Don’t be scared of dealing with HMRC.
Most of all, ENJOY the fruits of your writing endeavours!
FREQUENTLY ASKED QUESTIONS
WHAT’S IT ALL MEAN?
Follow some useful general tax information here.
As a UK resident, as soon as you start earning income, you’re legally obligated to report this to HMRC, and potentially to pay UK income tax.
WHEN DOES IT AFFECT ME?
If you’re employed, you’re already registered with HMRC, and your employer takes income tax from you every month to settle the liability as you earn. But if you’re self-employed, you have to register personally and directly with HMRC, report to them annually, and settle any tax liability at the end of every tax year.
Note 1: you should register with HMRC within a reasonable period of starting your self-employed work, this is usually after you start earning royalty income at any level. You must do this EVEN IF you don’t think you’ll need to pay tax on your earnings yet.
Note 2: You can be both self-employed and employed at the same time.
WHAT DO YOU KNOW ABOUT WRITING?
I’ve been writing professionally since 2007, with novels, novellas, and short stories published and available in bookstores like Amazon, in both print and ebook. I’ve worked with almost a dozen publishers during that time, and I have also self-published many titles.
Under the pen name “Clare London” I mainly write male/male romance, but as an accountant I will happily work with authors in any genre.
WHAT DO YOU KNOW ABOUT ACCOUNTANCY AND TAX?
I’m a fully qualified Chartered Accountant with over 30 years’ experience in audit, accountancy practice and commerce. I qualified with one of the top 5 accountancy practices in London, and have worked in many industries. I’ve always maintained a portfolio of smaller personal clients, doing both accountancy and tax work for them. My latest experience has been in media – so I’ve seen royalty payments from the point of view of both paying and receiving!
BUT I DON’T PAY TAX NOW
That’s fine – but should you or will you be paying tax? As soon as you earn income, you potentially owe tax. Everyone’s in the same boat.
There are minimum income limits, and tax-free allowances, under which you won’t have to pay tax. BUT you must still be legally registered.
If this is your first experience of earning income, I will help you register with HMRC and explain what needs to be done. It may be that you don’t have to pay tax – but at least you’ll be legal. HMRC’s penalties for missed registration and filing deadlines are much worse than any interest on late paid tax.
Sounds great, but I’m afraid you can still be subject to tax. Your State pension is covered by the tax-free Personal Allowance (as mentioned below) but if you receive any income over and above that, you may have to pay tax on that.
You will also need to register with HMRC as self-employed.
HOW MUCH CAN I EARN BEFORE I HAVE TO WORRY ABOUT THIS?
There’s a tax-free limit everyone can earn, called your Personal Allowance (PA). This changes each year but is currently £12,500 minimum (tax year 2020/2021).
There has recently been an additional limit of £1,000 brought in, to allow money from a hobby, or from a one-off event, to be earned without initiating a full self-employment status at HMRC. Feel free to check with me if this is relevant to you.
You may not earn that much – though you possibly would like to! – BUT you may still need to notify HMRC that you’re earning at all.
I’VE GOT A FULL TIME JOB AND ALREADY PAY TAX THROUGH PAYE
I’ve been in the same situation myself. This means you’re already established with HMRC, but you will need to report any new sources of income to them, because your PAYE isn’t set up to include any income you earn away from your employment.
Royalty income received by you personally is one of the additional income sources to be reported on a Self Assessment return.
I’M JUST STARTING AS AN AUTHOR
Congratulations! Your royalty income may be modest to start with, but you potentially need to register with HMRC and make annual returns. This starts with the first royalties you earn.
WHAT ABOUT NATIONAL INSURANCE?
After your earnings reach a certain level, you will also be liable to pay National Insurance. This will be payable at different rates, depending on what profit you make on your self-employed income.
Even if you don’t pay Income Tax on your self-employed income, it’s worth maintaining your NI contributions, as this will make sure you still qualify for a state pension and other health and job-related benefits.
I’VE BEEN WRITING FOR YEARS AND NEVER BOTHERED BEFORE / NEED A CATCH-UP
If you choose to deal with your own tax affairs, that’s great!
If you choose to deal with your own tax affairs, but never have before – you should and legally must.
If you’ve never really considered what has to be done – I’m here to help!
HOW CAN I PAY NO TAX AT ALL?
You have your Personal Allowance to earn before you have to pay tax.
You can also deduct certain business expenses to reduce the amount of tax payable.
But if you just don’t want to pay any, and think I’ll have a trick or two to magic away the liability? Sorry, but no! I’ll help you minimise it and calculate it accurately – but I won’t hide or mis-state it.
MY PUBLISHER/DISTRIBUTOR IS DEDUCTING OVERSEAS TAX FROM MY ROYALTIES
You need to establish your UK status with your publisher, usually through completing a W8-BEN form, see here. Without it, they’re entitled to deduct tax from your royalties before sending them to you.
Nowadays most booksellers/publishers will accept your NI number. I can help you complete the W8-BEN form that covers this situation.
I PUBLISH WITH A PUBLISHER AND ALSO ON MY OWN BEHALF
All of this income can be combined together for tax purposes, and I can deal with all sources.
I’M NOT A UK RESIDENT
Sorry but I can’t help you – my expertise is in UK tax, not overseas. The tax liability depends on the person’s residency, not where the income comes from.
SOMEONE TOLD ME IT’S BETTER TO TRADE AS A COMPANY THAN AN INDIVIDUAL
This is certainly an option and I’ve arranged it for other clients. It has advantages but also responsibilities. We can discuss this if you choose.
See also should I incorporate?
HOW LONG HAVE I GOT TO SIGN UP WITH YOU FOR?
The minimum contract is for a year, with 60 days’ notice period after the first 6 months. I would like to see you through a full tax year for us to get used to the arrangement, but obviously if circumstances change or we don’t work well together, we can consider other options.
HOW MUCH WILL IT COST?
See the Services Available page.
CAN I PAY AFTER I GET MY ROYALTIES?
Payment is on a monthly instalment basis to allow us both to have a smooth cash flow. If you want to join up with me and this is a particular problem for you, email me to discuss it.
ARE MY DETAILS GOING TO BE EXPOSED ONLINE?
No way. Everything about you and your business will be kept confidential. This will be emphasised in our agreement. We will communicate through your choice of personal email and everything we discuss will only ever be one-to-one.
CAN’T I HIDE SOME OF MY INCOME, OR MASSAGE THE EXPENSES, SO AS TO PAY LESS TAX?
See above re How Can I Pay No Tax At All. I’ll definitely make the most of your deductions and record your income accurately – but no lying allowed!
It’s worth noting that if HMRC have suspicions that you’re not taking your business seriously – for example, for every £100 you earn in a year you’re consistently spending £300, or you appear to have no way of paying for a month’s groceries – they will call you to account.
This may affect you, depending on your level of GROSS income (over £85,000 per year at current rates) and where your publishers are resident. I can advise whether and when it’s worth you registering.
From 1 April 2019 HMRC brought in Making Tax Digital (MTD) where VAT returns for businesses earning over £85,000 have to be made through approved software. I can advise on this in your situation.
NOTE 2021: I’m no longer handling VAT returns for clients.
DO YOU PAY YOUR TAX?
Oh, but yes I do! It hurts me as much as anyone else, but it has to be suffered, and is the legal trade-off for making money in the first place. However I’m keen to make the most of my money and claim what I can against my hard-earned royalties.
I’VE GOT ANOTHER QUERY NOT COVERED HERE
Feel free to email if you want to know about Q&Q and what we could achieve together.
And if you have a general query about tax on UK earnings, feel free to use the FreeQ contact form. Just make sure to read the conditions there first.
Got a burning but general question you want to ask a UK accountant?
Here’s a freeQ option!