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.
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:
- 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.
- 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.
- 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.
- 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.
- 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!
- 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.)
- 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!
- 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.
- 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…
- 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.