I’ve had this post on my mind for literally two years. When I realised I was actually going to be a published writer in receipt of royalties (from abroad), I had to learn a ton of tax and admin stuff very quickly. Here are resources that I used, and information I wished I’d known before doing taxes as an author. (I’m aware of the irony of posting this now, after leaving the UK *facepalm* what am I like?) I hope it’s useful for other newbies.
This post is aimed at writers based in the UK who are not USA citizens. This post also assumes you’ve done basic research into HMRC, self-employment, tax treaties, the IRS, etc, and you’re just looking for insight into finer details about the process. This is not a step-by-step guide.
I did all my taxes online so the information here reflects that. Always always always do your own research. Every situation is different. Don’t take this as legal or official tax advice please please please oh my god please don’t. What worked for me may not work for you! Treat this as potentially useful information only! And absolutely assume that things may change in the future, so information here could be outdated.
Prepare yourself for a wall of text.
Sole trader or limited company?
Depends. I went with sole trader because I was fairly certain that 1) I wasn’t going to earn very much – perhaps a grand or two per year if I was lucky – and that does factor into the decision. 2) I knew I wanted to leave the UK at some point, so I wanted a simple company structure with minimum set-up. 3) Sole trader is simpler all around. See the links at the bottom for more information on this.
Registering with HMRC if you’ve never filed a tax return before
First you need a Government Gateway ID (you’ll be signing up for Self-Assessment). Then you need to set up a business tax account on HMRC using the Gateway ID – do this by registering for HMRC online services. A personal tax site will also be created in the process. Sole trader earnings are declared via Self-Assessment tax returns, which are (confusingly) situated in the personal tax site. This process can take a few weeks, so don’t leave it to the last minute.
UK tax tips for authors
- General rule of thumb: whatever you declare, whether it’s hours worked or start date or earnings or expenses, have and keep proof. There is always a risk of being audited – admittedly a tiny one if you’re a wee author earning what is essentially peanuts to HMRC, but being lackadaisical about taxes isn’t worth it. Keep receipts, bank statements, paperwork, manuscript versions, contracts, emails, etc.
- You have to state when your business started. For HMRC purposes, this is ideally when you started earning ie your first royalty cheque. However, if you can prove consistent labour in your business before any earnings, your business start date can be earlier – even in the prior tax year (it means you’ll operate at a loss that first year though). Always clarify your own situation with HMRC before doing something like this.
- Due to the artistic (and thus inconsistent profits) nature of the writing business, any tax credit authors incur in one year (ie losses/refunds) can be offset against taxes on future profits over the next three years. This is called averaging for creators of literary or artistic works. Say you run at a loss to the tune of £100 in year 2 of being an author, but then in year 3 you earn loads and need to pay taxes on the profit. You can choose to use any amount of that £100 from year 2 to reduce your tax bill for year 3 (and 4 and 5). An example could be: £50 in year 3, £35 in year 4, £15 in year 5 = the £100 credit spread across the following three years after year 2.
- If you work from home, you can claim a little money for that, as your home is being used for your business. It can be complicated depending on your set up. If you have a dedicated office/study, expenses for that can be calculated as a proportion of your rent and utility bills. However, if that’s not what you’re doing (I was housesharing), you can just use this simplified expenses sheet.
- Related to the above: track hours worked. (I didn’t realise this until I did my first return! Argh, guesstimating sucks.) This includes writing, marketing, emailing, purchasing, administration, and research. If you travel to conventions as part of author work, those hours would also count.
- Get a spreadsheet going with your royalties/earnings, expenses, and hours worked. There are also software packages out there that can help if Excel isn’t your jam. HMRC require business owners to keep records, and having everything laid out in one place is super useful at tax return time.
- Decide what basis you’ll use to record income and expenses (cash basis is simple, but depending on what you use, you won’t be able to claim certain expenses).
- Expenses: the tax returns and HMRC site give a good indication of what are allowable expenses. Examples for authors: website running costs, relevant postage fees (if any), anything you pay towards marketing or advertising, books or products bought for research, rent/utilities, travel/convention costs, Word subscription, laptop/computer repairs, etc. If you buy anything in other currencies (like USD), convert the amount to GBP and use the GBP number.
- If you’ve also got a day job, you will likely have already paid national insurance via PAYE, so the class 2 national insurance (for self-employed income) will be optional. If writing is your sole source of income, then class 2 won’t be so optional.
- Speaking of day jobs – get the P60 forms from your day job. You’ll need them for the tax return. If you leave your day job, you’ll need the P45 form.
- Your author work is considered self-employment, so any income and expenses will be reported in the self-employment section of the return.
- Any questions, call HMRC. The magic words are Self-Assessment. Once with the SA team, you can ask them nearly anything. For hard numbers, calculations, or specific fields in the tax return, explain the situation and if they’re not helpful, ask for the technical team (you should be passed onto them for help anyway, but it’s good to know they’re there). Chat support is available too, but honestly, they always ended up directing me to the phone line. My first tax return involved no less than seven individual calls to HMRC asking about various things. The people on the other end were unbelievably kind about all my dumbass questions.
- Or, you know, pay someone to do your returns for you. That can be expensive though. If you’re not earning loads, the fee might not be worth the savings made.
- Don’t wait until the last minute in January to file a return. Seriously, the phone lines will be choked, and the hold music isn’t fun. You can start tax returns in May after the previous tax year closes in April. (Possibly even in April after the 6th? I’m not sure, but self-assessment is definitely open again in May.)
- The UK government is always tweaking the tax system. Try to stay on top of changes – new exceptions or allowances, new filing requirements, and so on. The Society of Authors is usually good about highlighting any changes that affect writers. For example, as of 2018, you only need to register for self-assessment if you earn over £1000 in your business.
USA tax stuff
Note: if you’re a USA citizen resident in the UK, your situation is unique and what follows won’t apply to you. This is for UK citizens who are living/tax-resident in the UK (ie non-resident aliens as defined by the IRS) in receipt of royalty income from the USA .
- ITIN: the IRS will withhold 30% of your earnings unless you claim the full amount under the tax treaty with the UK; in order to do that, you have to register with the IRS for an ITIN (or EIN, I believe, but ITIN was the route I took). There is some debate over whether this is worth the hassle of applying for a tax number, and ultimately it’s up to each individual. I think it’s worth doing: it means you get the full amount in USD, and pay tax on it at home. Given most UK people fall into the more reasonable 20% tax band at home, it’s a no-brainer on the financial basis alone. It’s a hassle in paperwork, but provided you fill everything out correctly, things should go smoothly.
- UK authors whose sole USA income is royalties do not have to file a USA tax return (thankfully). If you have other kinds of income from the USA, get advice for your own situation. You can check whether you need to file or not using this handy table. (0 = no requirement to file.)
- USD royalties: for sole traders/self-employed people, these are not classified as foreign income, they are the earned income for your business. Given these are in USD, you have to convert them to GBP and declare the GBP amount in your tax return (in the self-employment section).
- USD conversion: either use the actual GBP amounts you received when you converted your royalties, or use the official HMRC currency conversion tables for each month of the tax year. One or the other. My spreadsheet has one column detailing the USD amount received, another with the conversion rates, and a third with the final converted GBP amount.
- Conversion fees: ugh, I know. I get paid in USD via a certain widely-used financial middleman, and the fees are nuts. Not much to be done, unfortunately. There’s no magic bullet out there, given all the various financial market regulations around different products, countries, and economic areas. I’ve been keeping an eye on international digital banking solutions – Transferwise, Monzo, Revolut, etc – but there’s little that works directly with said financial middleman beyond traditional banks. Interbank conversion rates are better, but the transfer fees aren’t great (and don’t come into play when used in connection with said financial middleman anyway). Hopefully there will soon be something that’s better for folks outside of the USA than said financial middleman. Another option is setting up a USA bank account to help handle USD royalties, though this certainly won’t be feasible for everyone or every situation.
Society of Authors guidance and sheets
General information about setting up as an author in the UK
A little more information about being a limited company as an author
HMRC on self-employment as a sole trader (with links to other business structures)
HMRC – averaging for creators of literary or artistic works
HMRC Self-Assessment helpsheets
HMRC currency conversion tables
IRS UK tax treaty information, general tax treaty tables
IRS tax treaty income table (linked above)
IRS – ITIN info 1, ITIN info 2, ITIN FAQ
Leaving the UK but not the writing business? I’m going to write a separate post on changing countries and tax systems as a writer . . . once I’ve figured the full process out myself!