GENERAL INFORMATION about UK tax liability
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!
The UK tax year for an individual runs from 6 April one year to 5 April the next. All individual and business income has to be assessed for tax within a tax year. The tax periods are often shown as the years, for example, 2105/2016 (6 April 2015 to 5 April 2016).
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.
You can choose another year end for your own accounts that’s more suitable for you, though many people choose 31 March to match the tax period.
The accounting year that will be included in any tax year is the one that ends during that period i.e.
31 March 2015 will be assessed for tax in the tax year 2014/2015.
30 April 2015 will be assessed in 2015/2016.
You are allowed to earn a certain 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.
All the current tax rates are here in detail: http://www.hmrc.gov.uk/rates/it.htm
Current rate 2015/2016: 10,600.
Your GROSS income is the amount you earn before anything is deducted – e.g. expenses, pension contributions, salary deductions deductions, 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. This is done through the Self-Assessment tax return, completed for each tax year, and due to be filed at HMRC by the following 31 Jan.
You must REGISTER for Self-Assessment if you start earning from your writing, even if you make very little money from it at first (or ever). 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.
You can claim any 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 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 apply for the relevant Tax ID to qualify for the exepmption.
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.
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