I predict at least half my blog readers will read the title of this post and quickly surf onto something different, and to be perfectly honest, I really don't blame them.
Samantha Tonge of Doubting Abbey fame, posted a question about tax on her facebook page today. (If you're FB friends with her, do go and read the whole thing.) She got a lot of responses, and there's some very useful information in there which she suggested ought to be passed on to the wider writing public. That's you lot, dear blog readers!
This applies to UK residents only. If you're elsewhere in the world, breathe a sigh of relief and consider yourselves excused to leave this blog now. The rest of you, if you're earning from your writing, either read on or emigrate before the end of January.
So the question is, say you've sold a couple of stories and had no other income so are well below the tax threshold, do you need to register for tax?
And the short answer is, Yes.
You won't have to pay any tax if your profits (plus any other income) fall below the tax threshold. But you still need to register for tax, fill in a tax return, declare all income from writing (and anything else unless you're employed and on PAYE), claim all expenses, and if the overall profit is over the threshold pay any tax due. Failure to do so could result in a fine, plus big tax bill when HMRC catches up with you.
I'm absolutely no expert on tax - I have a day job, I'm on PAYE, I do a tax return and include any writing income (ie nothing really since I switched to writing novels!) and include the family allowance income since they changed the rules, and don't claim expenses (but I should).
I've read through the post on Sam's FB page, which includes some great input from full time, well-organised writers such as Simon Whaley, Geraldine Ryan and Emma Darwin. Here's the gist.
If you earn anything from writing, you need to do a tax return. This needs to be completed by the end of January, to cover the year up to the previous 5th April (so the current tax return would cover 6th April 2012 - 5th April 2013). You can do a tax return online but need a government gateway id which has to be sent to you via the post, so if you don't have one, go here now to register for one, as time is running out. (You can also do tax returns on a paper form, but that has to be submitted before 31st October so way too late for this year.)
You need to declare all income from writing - sales, competition prizes (I think), payments for critiques or writing courses etc.
You can claim for all writing-related expenses - paper, ink, stamps, your computer and printer if they're not used for anything else, and for a percentage of them if they are, course fees, travel if writing-related eg to a course, books, possibly a percentage of your heating/lighting bills as your home is your workplace. Basically you're self-employed and anything which is a business expense can be claimed for.
All expenses are added up, and subtracted from your writing income. This gives your profit. Profit is taxable.
If your profit is over the threshold you need to pay tax. If your expenses exceed your income (ie you made a loss) then this loss can be carried over and set against any profit made next year. So if you're earning sod-all this year but are expecting this to go up substantially (eg you've just ensnared an agent and are expecting to sell a novel for a large advance) then completing a tax return this year and claiming expenses may actually reduce your tax bill next year.
Ideally you should have receipts for all expenses. Where this is not possible eg claiming driving milage, a note in a diary should suffice - anything to help you prove you really did incur the expense.
If in doubt, phone the tax office. They will help you do the right thing in the right way, and will help ensure you pay the right amount of tax, neither too little or too much. Lots of useful information here.
And if you're becoming serious about writing, do get yourself organised. Start keeping receipts - maybe an A4 envelope for each month. Tot up expenses and income in a spreadsheet as you go. The more you do during the course of the year, the easier the tax return will be. Employ an accountant if you need to and can afford to, but it's all really about being organised, keeping records, adding and taking away. We all ought to be able to do that!
Note to self: must start keeping expenses receipts for next year's tax return. Very important because I have actually earned something from writing during 2013-14 tax year, thanks to my two How To books!