(NOTE: tax references detailed here are UK only and correct at time of writing (March 2022), and so are subject to change in the future.)
It only seems like yesterday that I was sorting out my 2020-2021 tax return, and yet, here we are, on the downhill stretch towards the end of the 2021-2022 tax year. Time flies when you’re having fun! Or am I getting old?
It may be over thirty years since I started writing for money, but I remember that moment when I received my first payment. It was a postal order for £3.50 (Yes, it was that long ago). But I soon realised that if people were going to pay me for my words, then I needed to think about the taxman.
Thankfully, he’s not as draconian as you may think. Since 6th April 2017, HMRC gives everyone a £1,000 tax-free property and trading allowance. For writers, this means that when we sell (trade) our words, we don’t have to tell the taxman until the total earned from our writing within one tax year is £1,000. (HMRC may change this limit in the future.)
However, we must keep accurate records because as soon as we cross that threshold, we need to register as self-employed.
Two Jobs
Writers are frequently told not to give up their day job. While there are some hugely successful traditionally published and self-published writers, the vast majority of writers do not earn the money that bestselling authors like JK Rowling enjoy. A joint survey by the Authors Licensing and Collecting Society (ALCS) and the University of Glasgow in 2018 revealed that the median earnings for writers who spent more than half their working time writing was £10,497 a year. It also estimated that 10% of the highest-earning writers were taking 70% of the profession’s total earnings.
Therefore, for many writers, the day job is still a necessity. And it is possible to be employed in a day job, and registered self-employed as a writer in your spare time.
As soon as you earn more than £1,000 in any tax year from your writing, register with HMRC as self-employed. It will mean completing a tax return every year (if you don’t already), and you’ll need to complete the self-assessment self-employed pages.
Thankfully, these are not too onerous. As long as your self-employed income is less than the VAT threshold (currently £83,000) per year, there’s only a two-page document that needs completing.
Expenses Offsetting
One benefit of being registered self-employed is that we’re permitted to offset any legitimate expenses against any income we make. That is useful because we’re taxed on our profits, which is the difference between our income and our expenditure. So, if we earned £5,000 from our writing, but incurred £2,000 of eligible expenditure, we’re only going to be taxed on our £3,000 profit, not our £5,000 income.
However, we can only claim legitimate business expenses. If, while on a family holiday in Scotland, we found a fascinating museum in Edinburgh that gave us all the background material we required for the plot of our next novel, we can claim the museum entry fee as a valid expense. But the taxman might raise an eyebrow if we were to claim all the expenditure of the family’s two-week holiday.
Usually, determining what is an eligible expense is relatively straightforward.
Essentially, if it’s incurred directly and wholly because of our writing business, then we can claim the entire cost. If we have any personal use out of it, then some expenses may be eligible on a pro-rata basis.
So, any stationery you buy (Post-It notes for scene plotting, pens and notebooks for recording research) would be eligible, as would any entry fees and travel costs incurred solely for our writing business. Don’t forget to include any costs of items that you sell on. If you self-publish your books and buy stock to sell to at events, then that stock cost is an eligible business cost too.
Likewise, you can claim any website hosting costs and advertising, where you share details about your latest book, as well as subscriptions to organisations you may join because of your writing business. My Society of Authors, Alliance of Independent Authors, Crime Writers’ Association and Outdoor Writers and Photographers Guild memberships are all business costs I can offset against my income. My subscription to Writing Magazine is also a valid business expense. (Subscribe now and let the taxman pay!)
Of course, if you incur expenditure, such as book research, before you earn any money, it’s still possible to use these expenses to offset against any other tax you may pay from your employed earnings. So, there can be advantages to registering as self-employed before you’ve earned any money from your writing.
Dating the Tax Year
In the UK, the HMRC tax year runs from 6th April through to the 5th April the following year. While the 5th/6th April are important dates, they’re not the only dates that we need to mark on our calendar.
The 5th April 2022 marks the end of the 2021-2022 tax year. If you’ve earned more than £1,000 from your writing during this tax year, you have until 5th October 2022 to register as self-employed.
If you’re completing a paper tax form, you need to submit it to HMRC by midnight on 31st October 2022. They will calculate the tax you owe, and you’ll need to pay this by 31st January 2023.
If you’re happy doing it online (of which some 96% of us are), you have until 31st January 2023 to submit your return. Once submitted, HMRC will automatically calculate any tax you owe, and this is also due by midnight on 31st January 2023. As any writer knows, leaving anything too close to a deadline can raise stress levels.
HMRC may also ask you to mark 31st July into your diary. Sometimes they ask us to make a payment on account for our next tax year. The tax year we’re in now (2021-2022) ends on 5th April 2022. Even though we may not know exactly how much tax we need to pay for this financial year by 31st July, HMRC assumes our income is similar to that of last year, and so asks for an upfront payment (typically 50%) towards what it thinks we might owe in tax. This payment is taken into account when the final payment is due on the following 31st January.
The Joy of CEST
A couple of magazines who have commissioned me over the last twelve months have sent me copies of CEST forms for my records. CEST stands for Check Employment Status for Tax.
HMRC introduced the tool to help businesses determine whether they should classify people working for them as employed or self-employed. If they’re employed, they should be on the company’s payroll system and pay tax through PAYE, whereas self-employed freelancers are personally responsible for paying their tax.
This tool is primarily aimed at people who might offer their services through an agency or intermediary. Normally, this wouldn’t affect writers and authors, but some businesses are using the tool to double-check, so it’s possible that, like me, you may come across the document.
HMRC’s CEST tool is an online questionnaire that anyone can use: hirers, agencies or workers. It does not ask for any personal details. The tool simply asks a series of general questions about the work situation and then delivers a result. These include whether we might incur costs to do the work before they pay us, whether the hirer gains any intellectual property rights, or if the worker can send a substitute to do the work.
When the assessment is made, it’s based upon the job we are doing for that magazine, which in most cases will be writing an article. (In my experience, magazines have sent me the CEST results shortly after commissioning me.)
It doesn’t matter if we’re also employed elsewhere, either full-time or part-time. The CEST tool determines who is liable to pay tax for the specific work being undertaken. We pay our tax through the PAYE system on any work we do for an employer, but anything we do on a self-employment basis is down to us to pay through the self-assessment service. We are responsible for paying the right amount of tax on the money we’ve earned for that freelance job.
If you receive a CEST form, check the details are correct. It details the questions the tool has asked the commissioning publication and how they answered them. If there’s anything you don’t understand or dispute, raise it with the editor before you start work on the project. If everything is in order, then simply file the document safely for your records.
Most magazines won’t bother with this because it’s usually clear that any work they commission from you is on a freelance, self-employed basis.
Don’t let the tax side of your writing business bother you. Remember, there are thousands of us filling out our tax returns each year. You’re not being asked to do anything that nobody has ever done before.
If you need any clarification, look at the HMRC guidance notes accompanying most forms. These are frequently helpful. Asking friends and family can be useful, but it’s always best to get advice from experts. Try calling HMRC on 0300 200 3310 (Mon to Fri, 8 am to 6 pm), and if you’re still unsure, then seek advice from an accountant. When approaching accountants, ask them if any of their other clients are writers because some special tax rules apply to us.
Remember, paying tax on our writing business is a good sign. It proves we’re generating an income from our words. It means we’re successful writers!
Business Directory – Useful HMRC Advice for Writers
Register as self-employed: [https://www.gov.uk/register-for-self-assessment/self-employed]
Expenses if you’re self-employed: [https://www.gov.uk/expenses-if-youre-self-employed]
CEST Tool: [https://www.gov.uk/guidance/check-employment-status-for-tax#worker]
(c) Simon Whaley