GENERAL INFORMATION about UK tax terms and rules

I can offer advice and help on any of these matters, including setting you up under Self-Assessment, answering queries on your author income and expenses, and preparing and filing your year end tax return. Contact me if you need help!

HMRC stands for Her Majesty’s Revenue and Customs. They deal with all your taxes as an employee and/or a self-employed person, also state benefits and pensions.

Sole trader or self employed is the description if you are running your own business. You can be BOTH self-employed and employed at the same time – as so many authors have to be!

When you start a business, you need to inform HMRC that you’re now trading. You therefore commit to accounting for your tax directly to them, rather than through an employer’s PAYE system. I cover the registration process and rules elsewhere.

The UK tax year for an individual runs from 6 April one year to 5 April the next. All income has to be assessed for tax within a tax year. The tax periods are often shown as just the years, for example, 2108/2019 is a quick way of showing 6 April 2018 to 5 April 2019.

You can choose any accounts year end for your own business that’s suitable for you, though many people choose 31 March to match the tax period.

Matching the accounting year to a tax year? It will be the one that ends during that period i.e.
31 March 2019 will be assessed for tax in the tax year 2018/2019.
30 April 2019 will be assessed in 2019/2020.

You are allowed to earn a certain tax-free amount before you have to pay tax. This is called your Personal Allowance (PA). If you’re over 66, the limit may be even higher.
Current rate for 2018/2019: £11,850. When your income passes this limit, you pay tax at rates that range from 20% to 45%, depending how much your income is. This is based on NET income i.e. after you’ve deducted any allowable expenses.

Your GROSS income is the amount you earn before anything is deducted – e.g. before expenses and income tax.

Your NET income is the amount you actually receive after all these deductions.

If you are already employed in another job, you’re probably paying tax through the PAYE system. This means you’re already paying the tax you need to for that job. However, it also means your PA is being used up. So if you earn any extra income from anywhere else – for example, your writing – it’s up to you to make sure it gets included for tax. This is a legal liability, and any mis-statement, understatement, or evasion will be punishable by fines and possible prosecution.

Your extra income is reported through the Self-Assessment tax return (SAR), completed for each tax year, and due to be filed at HMRC by the following 31 Jan. You may not ever have filled in a tax return before. There are fines charged for not telling HMRC promptly that you’re starting a business as an author, and also for filing your SAR late.

You can claim expenses against your income that were incurred wholly and exclusively for your business. If there’s a personal element involved e.g. you take a trip that involves both a writing conference and a family holiday. only the business part of that expense is allowed for tax.

Some overseas publishers and distributors may deduct tax at source, according to their country’s tax rules. The USA can do this, and you would only receive what’s left. But tax treaties have been put in place between many countries that exempt this charge, including the USA. However, you do need to complete relevant paperwork to qualify for the exemption.

If you are wholly and only self-employed, you also need to pay your own National Insurance contributions. This ensures you’re fully eligible for state benefits and also a state pension. These used to be paid monthly, but nowadays are grouped in with any Income Tax you have to pay under Self-Assessment.

Useful links:

Introduction to Self Assessment: http://www.hmrc.gov.uk/sa/introduction.htm

What records need to be kept: http://www.hmrc.gov.uk/sa/rec-keep-self-emp.htm

Copyright: quidsandquills.com / 2019