The Best form of Defence is a Tax (Adviser)

As a self-employed author, tax and accounting is definitely the second largest administrative overhead (after chasing freelance clients for invoice payments.) I set aside Friday afternoons to deal with my finances – largely because I’m pretty written out by then, and partly because I don’t think it’s a great idea to email anyone after 2 p.m. on a Friday unless you’re happy for them to have forgotten about you on Monday morning.

Person signing in to online self assessment on their phone
I never do this on my phone… I do it with about 600 explanatory tabs open and a litre of coffee.

Even though I’m a girly swot, I still have a serious case of the jitters at the prospect of misfiling my tax return. Do I account for my royalties before or after my agent’s percentage has been taken off? Do I declare expenses payments as payments? What expenses can I claim. Being a timid soul I’ve always tended to declare everything and claim almost nothing.

But yesterday I was lucky enough to attend another Society of Authors event provided by tax specialists HW Fisher. You don’t necessarily expect a two-and-a-half hour session on tax to be exciting but it was incredibly lively and it really brought home how confusing it is to account for multiple types of income from multiple countries, being paid in multiple ways.

It made me realise I’m not alone and I’m not entirely cretinous when it comes to all things HMRC: an author’s life is just really complicates. Our incomes tend to oscillate wildly, we often have some form of employment alongside our writing although this is often part time or on a short term contract. We are, most often, our own accountants, collections agents, and payroll processors rolled into one. It’s no wonder we need advice.

So here are the top 10 things I learned about self-assessment tax for authors:

  1. VATable and taxable income are not the same: all income is taxable (over the personal allowance threshold – 12,500 as of October 2019) but only income earned in the UK is VATable. And PLR income is taxable but not VATable. ALCS income is, on the other hand, VATable… See Barry Kernon’s 2017 guide on VAT for authors for details.
  2. Always declare expense payments as income and the corresponding expenditure as an outgoing. It won’t affect your taxes but it might put you over the income threshold for VAT. However, if the organiser of an event pays for your travel and accommodation directly you don’t need to account for this.
  3. If you are travelling for research/talks/meetings and you happen to tag on a day’s sightseeing then you can include flights, and the accommodation required for attending the meeting, as outgoings. But if you happen to do a bit of work on holiday then sadly you can’t claim for the trip. The primary purpose of the trip has to be business.
  4. If you’re fortunate enough to be an author of sufficient renown that people would pay to own your archives, you will have to pay tax on the income that comes from selling those papers.
  5. Most authors currently don’t benefit from voluntarily registering for VAT, or from setting up as a limited company. The benefits of doing these tend to change as tax regulations change – it’s definitely something you want expert advice on before committing!
  6. HMRC’s flat rate home working allowance is probably far less than you could claim if you actually worked out your expenses. Utilities are worked out on proportion of time and space used for working. Building overheads (council tax, insurance, interest on mortgage/rent…) can be claimed as a proportion of space used (either by square foot or by the number of rooms – not including kitchens or bathrooms – in your home.)
  7. But don’t use a room entirely for work. If it doesn’t have at least some personal use, this has capital gains implications when you sell your house!
  8. Professional subscriptions and training are deductable but only if they relate to the business you’re in. I could potentially claim for a course in shorthand or archival research, but not for a course in taekwando or felting.
  9. Reasonable subsistence: if you have to be away from home – for a training course, to visit a client, or to do research, you can claim reasonable meal costs as expenses. Things that don’t count are: eating out when you could conceivably have home home for lunch, eating out because you chose to work from the library, eating out because the seventeenth trip to the fridge failed to yield anything more appetising than the first sixteen.

    You can’t claim for entertaining. You shouldn’t claim for buying lunch for your publisher or agent: apparently they should always buy lunch for you…
  10. Keep six years of records as a minimum in case of investigations. Keep a diary that logs your meetings and travel (this can be your work calendar – it’s worth annotating this with mileage if travelling by car.) You don;t need to log all calls but keep a sample log of your calls so you can figure out the proportion of business and personal calls.

If you’re a member of the Society of Authors (and if you make or are planing to make money as an author and are based in the UK you really should be – it’s the best investment you could make in your career!) then there is a tax helpline you can call, and you can also benefit from a free, one hour tax review with HW Fisher. You can also benefit from insurance that will pay accountancy fees should you end up being the subject of an HMRC enquiry.

So if tax is giving you conniptions, don’t hide from it. I’ve realised I have been under-claiming on home-working expenses systematically (because of lack of confidence) and that I was likely to make an error on my 2019-20 tax return by declaring royalties/advances as net of agency fees. It won’t make any practical difference, my income wont go high enough to have to register for VAT, but it could have raised an eyebrow at HMRC if I systematically declare an income that is 20% lower than my publisher’s expenditure…

Time to go back to my usual place of work, look in the fridge for an eighteenth time, and fire up my accounting software.

Copyright, licenses, and reversion (oh my!)

[Note that this blog post dates from October 2019. After strenuous work by the Society of Authors and its equivalents around the world, EU member states should transpose laws that make rights reversion a matter of statute under thanks to the new Copyright Directive. That means that authors in EU member states will have reversion rights no matter what their publisher says. This is something that needs to be transposed into each member state’s laws by June 2021. How that happens (or whether that happens) in the UK will depend on what kind of Brexit happens… watch this space.]

As writers we create assets all the time. Sometimes – particularly for freelance journalism – we assign the copyright to the publisher. But books have a longer shelf life, and that makes their copyright a much bigger asset.

Book deals – contracts with publishers – aren’t buying your words per se. They’re buying a license to use your words.[1] And that license can broad (all territories, all languages, all formats) or narrow.

But what do you do if your publisher doesn’t exploit that license: if your book languishes, or even goes out of print? In some countries there is a statutory right of reversion. After a period of time – or when fewer than a certain number of copies are sold, the license lapses and you’re free to resell those rights to another publisher. But that’s not the case in the UK, Australia or New Zealand at least in 2019.

Last night I was lucky enough to attend a talk and discussion at the Society of Authors. The keynote speaker was Professor Rebecca Giblin of Monash University. She painstakingly sifted through the archive of the Australian Authors Association to see which reversion rights (if any) existed in writers’ contracts.

Worryingly, 14 percent of authors didn’t have an out of print clause at all, which means that if the publisher just stops printing the book, the author has no right to reclaim their copyright and sell a license to another publisher. Of the other 86 percent of authors, some of the out of print clauses aren’t fit for purpose for the 21st century, Out of print clauses that say you can reclaim your copyright when your book was no longer ‘technically available’ made sense before e-books and POD. But now your book may be technically available, but languish unmarketed and unloved . Prof. Giblin suggested that authors ask for objective criteria (fewer than N copies sold, less than ┬úN in royalties for a period of X months…) rather than rely on a contentious definition of ‘unavailable.’

She also pointed out that many contracts lack a clause that deals with liquidation. In the UK at least, licenses are assets that belong to the publisher and do not revert back to you when they go out of business. If you don’t have an explicit liquidation clause then your license may go to the Crown. And as funny as it is to imagine Brenda working as a publisher, I don’t think any of us fancy the legal nightmare that detangling our copyright from the liquidator’s asset list entails.

Jazzmine Breary of Jacaranda books and Emma D’Cruz of Penguin Random House talked about how their contracts work, and how licenses are what lets publishers stay in business, but also that good publishers only ask for the rights that they know they can help exploit. If your agent isn’t part of a film and TV agency, or doesn’t have a strong overseas network, you may be better selling a licence for other formats and territories to your publisher, rather than hoping your agent can sell those rights on. That certainly worked well for me: Profile Books have a great working relationship with English Language publishers in Canada, Australia/New Zealand, and an agent in the US, whereas my agent, Carrie Plitt, was great at finding new territories for translated versions.

In short – while there are some horror stories out there, your agent, your publisher and you all have a vested interest in getting your book to market and making sure it does great when it gets there: whether that market is dead tree ware, e books, audio, translations, adaptations, you name it. If you’re happy with what a publisher can do with that license, there would be no need to take it back. Reversion should only come into play when your asset isn’t being exploited by the licensee as well as it could be.

If you have any questions about contracts, conditions, or the business of publishing, I urge you to join the SOA. As one of the audience members noted last nigh, as writers, we are business people too. We’ve all got mouths to feed and doors to keep the wolves from. By working together we can try to make sure that writing isn’t just a profession that is open to those dilettantes who don’t need the money {*cough* Jacob Rees Mogg *cough*} when there are far more talented writers out there.

I’m going to stop now before I start singing trade union anthems…

[1] Professor Giblin said that she had seen some contracts in the archives where publishers had requested the copyright per se. This wasn’t usual – and oftentimes the publishers didn’t even seem to know that they’d done this as it was incompatible with other wording in the contract. This is why it’s extremely useful to have a) a knowledgeable agent and b) a membership of the Society of Authors so you can use their contract advice services! You can even join as an emerging member before you sign your first contract.