Friday, 10 January 2014

Let's Talk Tax

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! 





21 comments:

Wendy's Writing said...

This is a very important topic, Kath. A lot of people don't realise they don't have to declare if they are earning below the tax threshold. I had to do my first tax form this year as I had earned quite a bit from my writing but I am ashamed to say I let my husband do it for me as I am quite hopeless at such things.

Blog Master said...

I believe you, Kath, but let me tell you my experience. I phoned the tax office and was told I did not need to submit tax accounts as my writing was a hobby. I was worried about that so I wrote to the tax office including a detailed statement of my accounts. I had a letter back telling me how to claim child benefit allowance. Don't laugh, this is serious. I then had another letter back telling me I do not need to declare my accounts to them for my hobby. Is this their way of saying we won't allow you to carry over your losses?

Rosemary Gemmell said...

Good idea to remind freelancers of this, Kath - I've just completed mine online!

Joyce said...

A law that says, 'Oh, that's all right, call what has made you some money a hobby and we won't take any notice of it' - ? All very well as long as HMRC haven't come across your earnings for themselves, as that's when all of a sudden they'll say you've been breaking the law and you're liable for back tax and fines.

Samantha Tonge said...

Well explained, Kath.

I don't know how the tax office defines a hobby - i rang up and said i wanted to register as self-employed as i was earning from my writing and it went from there. I had no idea you had to register if you weren't paying tax - i now have to fill in backdated tax forms for three years - urgh!

Blog Master said...

It's now eleven years since I retired and started writing in earnest. In the early days I diligently submitted annual tax returns, but none showed a profit. I presume the tax people think that if I haven't made a profit by now I never will. And I suppose they're probably right... for me it is an old man's hobby.

Nan Sheppard said...

My income is way below, but I still keep my records carefully. I haven't done my return yet but it won't take too long :)

Carolb said...

I keep records and receipts, though I haven't received any money yet, though I have a couple of pounds of royalties credited to me, but can't be paid them yet per the contract terms, so haven't contacted the tax office yet, because of that.

womagwriter said...

The usual advice from the tax office is, if in doubt, submit a tax return and let them work it out. And it occurs to me that carrying over a loss which can be offset against future profit will be a good idea in the long run. You never know when your writing income might suddenly take off! It's only a hobby if you never submit anything for publication.

Wendy - there's no shame in getting someone else to fill in the form for you. I get my husband to check mine as well as he's better with money than I am.

sallyjenkins said...

I phoned up the tax office a couple of years ago and explained I was PAYE but earned a very small amount from writing. I asked what to do. The girl was flummoxed and told me to write a letter. I wrote a letter and never heard anything in reply. Perhaps I should chase again.

Blog Master said...

Like you, Sally, I wrote to them because I wanted a reply in black and white. I have it in front of me. "...in relation to your hobby as a creative writer... you are not allowed to claim expenses... and you do not need to declare this to us." That is also what I was told over the telephone. Goes against everything I previously thought when I was diligently submitting tax returns for my writing.

Sally Quilford said...

According to the Writers & Artists Yearbook (page 704) the Inland Revenue can suggest that your writing is a hobby if you make a loss from it. But you do have to let them be the judge of that, I think.

Bernadette said...

One additional thing - if you are registered as self employed, even if the amounts are too low to pay tax or compulsory National Insurance, you can still opt to pay voluntary National Insurance. Although this might seem like an odd thing to do, it means you are building up pension years which may be worth it in the future if you are short of the current 30 year requirement for the full state pension.
Of course, pension rules can (and do!!) change and everyone's personal circumstances are different, but it's worth looking at to see if it might work for you.

womagwriter said...

That's a really good point, Bernadette, thank you. In that case paying NI contributions should be thought of in the same way as paying into a pension plan.

Kath said...

I too phoned the tax office when I sold my first story as I was on PAYE at the time. They asked me if I thought it would be a one-off and I laughed and said I hoped not which seemed to take them aback slightly! Not sure what would have happened if I'd said yes but anyway they wrote to me a few weeks later and said it "had come to their attention" that I might need to do self-assessment. So I've been doing it ever since. As it happened, the first year I actually got a rebate. There'd been a mistake in the previous year's PAYE that might not have come to light if I hadn't done self assessment. Mind you, Blog Master, you do say that you only started writing in earnest after retiring so maybe that's why they're treating you differently - but I have to say I'm surprised by the replies you've had.

Dolores Doolittle said...

Thank you, womag - can't WAIT till I have to consider this stuff!

Colette McCormick said...

I filed my tax return a few month ago not because I am super organised but because I have a lousy memory and I didn't want to fall foul of HMRC for the sake of what I earned in the previous year which was a pittance. Didn't stop them from taking 30% of it though regardless of how small the amount. If only I'd hung onto receipts for stamps etc. I might even have been due a rebate. Great post by the way.

Samantha Tonge said...

You must have been earning enough to be paying tax on it though, Colette, right? (I'm getting worried now!)

Ooh, guess ALCS payments have to be declared as well...

HelenMHunt said...

I'm about to start my tx return today - nothing like leaving it to the last minute - and I hate it so much. I have real difficulties with anything involving maths or numbers so I find it really traumatic. However, the tax office people have always been lovely when I've phoned with a problem, even if it's a really stupid question and even if it's the day before the deadline. So if you are struggling or aren't sure about any aspect of it I would advise contacting them as it is better to get it right if you possibly can!

HelenMHunt said...

See, I can't even bring myself to type the word t-a-x!

Laura said...

This is my first year submitting a tax return... I'm just going to put everything down and let the tax man decide (frsutratingly) - You never know if I put too much down I might get a rebate!