A working writer is carrying on a business and can therefore claim all the expenses which are incurred wholly and exclusively for the purposes of that business. A list showing most of the usual expenses can be found in the article on Income tax, in , but there will be other expenses that can be allowed in special circ*mstances.
Strictly, only expenses which are incurred for the sole purpose of the business can be claimed; there must be no ‘duality of purpose’ so an item of expenditure cannot be divided into private and business parts. However, HM Revenue & Customs are now able to allow all reasonable expenses (including apportioned sums) where the amounts can be commercially justified.
Allowances can also be claimed for the cost of business assets such as a motor car, personal computers, fax, copying machines and all other equipment (including books) which may be used by the writer. An allowance of 100% of the cost can now be claimed for most assets except cars, for which a lower allowance can be claimed. See the article on Income tax for further details of the deductions available in respect of capital expenditure.
Can I request interest on fees owed to me beyond 30 days of my invoice?
Yes. A writer is like any other person carrying on a business and is entitled to charge interest at a rate of 8% over bank base rate on any debt outstanding for more than 30 days – although the period of credit can be varied by agreement between the parties. It is not compulsory to claim the interest; it is up to you to decide whether to enforce the right.
What can I do about bad debts?
A writer is in exactly the same position as anybody else carrying on a business over the payment of his or her invoices. It is generally not commercially sensible to insist on payment in advance but where the work involved is substantial (e.g. a book), it is usual to receive one third of the fee on signature, one third of the fee on delivery of the manuscript and the remaining one third on publication. On other assignments, perhaps not as substantial as a book, it could be worthwhile seeking 50% of the fee on signature and the other 50% on delivery. This would provide a degree of protection in case of cancellation of the assignment because of changes of policy or personnel at the publisher.
What financial disputes can I take to the Small Claims Court?
If somebody owes you money you can take them to the Small Claims Section of your local County Court, which deals with financial disputes up to £5,000. The procedure is much less formal than normal court proceedings and involves little expense. It is not necessary to have a solicitor. You fill in a number of forms, turn up on the day and explain the background to why you are owed the money (see www.courtservice.gov.uk).
If I receive an advance, can I divide it between two tax years?
Yes. There is a system known as ‘averaging’. This enables writers (and others engaged in the creation of literary, dramatic works or designs) to average the profits of two or more consecutive years if the profits for one year are less than 75% of the profits for the highest year. This relief can apply even if the work takes less than 12 months to create and it allows the writer to avoid the higher rates of tax which might arise if the income in respect of a number of years’ work were all to be concentrated in a single year.
How do I make sure I am taxed as a self-employed person so that tax and National Insurance contributions are not deducted at source?
To be taxed as a self-employed person you have to make sure that the contract for the writing cannot be regarded as a contract of employment. This is unlikely to be the case with a professional author. The subject is highly complex but one of the most important features is that the publisher must not be in a position to direct or control the author’s work. Where any doubt exists, the author might find the publisher deducting tax and National Insurance contributions as a precaution and that would clearly be highly disadvantageous. The author would be well advised to discuss the position with the publisher before the contract is signed to agree that he or she should be treated as self-employed and that no tax or National Insurance contributions will be deducted from any payments. If such agreement cannot be reached, professional advice should immediately be sought so that the detailed technical position can be explained to the publisher.
Is it a good idea to operate through a limited company?
It can be a good idea for a self-employed writer to operate through a company but generally only where the income is quite large. The costs of operating a company can outweigh any benefit if the writer is paying tax only at the basic rate. Where the writer is paying tax at the higher rate of 40% (or 50%), being able to retain some of the income in a company at a tax rate of only 20% is obviously attractive. However, this will be entirely ineffective if the writer’s contract with the publisher would otherwise be an employment. The whole subject of operating through a company is complex and professional advice is essential.
When does it become necessary to register for VAT?
Where the writer’s self-employed income (from all sources, not only writing) exceeds £73,000 in the previous 12 months or is expected to do so in the next 30 days, he or she must register for VAT and add VAT to all his/her fees. The publisher will pay the VAT to the writer, who must pay the VAT over to the Customs and Excise each quarter. Any VAT the writer has paid on business expenses and on the purchase of business assets can be deducted. It is possible for some authors to take advantage of the simplified system for VAT payments which applies to small businesses. This involves a flat rate payment of VAT without any need to keep records of VAT on expenses.
If I make a loss from my writing can I get any tax back?
Where a writer makes a loss, HM Revenue & Customs may suggest that the writing is only a hobby and not a professional activity thereby denying any relief or tax deduction for the loss. However, providing the writing is carried out on a sensible commercial basis with an expectation of profits, any resulting loss can be offset against any other income the writer may have for the same or the previous year.
