Today is National Authors Day, an opportunity to celebrate talented writers across the country that have helped to shape our lives with the stories that they write.
At HW Fisher, we’re proud to work with and support authors across a range of genres and all at different stages of their writing careers with all of their tax needs. Barry Kernon, Consultant at HW Fisher answers ten of the most commonly asked questions that he is asked by authors when it comes to tax.
1. What are the most frequent mistakes authors make on their tax returns?
The most common error is to show income after deduction of agent’s commission and VAT. Gross income, before deductions, should always be shown, with a separate claim being made for the commission and VAT costs.
Apart from being the technically correct way of making the declaration, showing the income after deductions may lead to an enquiry by HM Revenue and Customs (HMRC) because they will probably have received a declaration either from publishers or literary agents showing the full figure.
There are a couple of common omissions – student loans need to be mentioned as does child benefit where either spouse or partner earns in excess of £50,000 per annum. It is important to remember that all income must be declared on the tax return whether or not tax has already been paid on it.
2. What tax issues are authors most confused about?
The Income Tax payments on account system sometimes causes confusion, particularly in the early days of the profession. Tax on the first year’s income is payable on 31 January following the year of assessment but it often comes as a surprise that a payment of another 50% is due on the same day, on account of the then current year. A further 50% payment is due on 31 July following the year of assessment. Applications can be made to reduce payments on account where it is known that income is falling.
Authors’ averaging of profits can also be confusing. Averaging does not spread tax liabilities forwards or backwards, it is simply a calculation designed to reduce the tax payable in the second of two adjoining tax years. The adjustment being calculated by reference to the average of the profits for the two years. Only fluctuating profits can be averaged.
3. What expenses do authors often forget to claim?
The most common omission, or understated claim, is that of use of home as office. Where a room is furnished as an office, a claim for running costs can be made for 365 days a year. The expenses claimed can include rent or mortgage interest, council tax, buildings insurance, contents insurance, repairs and decorating, service charges, water if metered and light heat and power.
Where a room is furnished as an office, but not in constant use, light heat and power costs need to be restricted to actual usage.
4. When you receive royalties via an agent, do you pay tax on the whole amount received from the publisher, or just what actually comes through once the agent’s commission is taken off.
You don’t pay tax on the whole amount. The tax liability is on the net payment after deduction of the commission.
5. When do HMRC want a detailed expenses claim?
A detailed expenses claim is only required where the author’s turnover is above the VAT registration limit, currently £85,000 per annum. A full record should be kept so that any HMRC enquiries can be answered.
6. Can an author claim that most cultural expenditure, e.g., books and theatre tickets, are business expenses, as it all feeds into the work? I have a Netflix subscription. Some of the films relate to my work and some are family films. Can I claim for a percentage of the subscription?
Authors can generally claim that most cultural expenditure e.g., books and theatre tickets, is business related but it is generally advisable to exclude a percentage to cover any private element. The same applies to the Netflix subscription.
We recommend keeping all receipts, business and domestic, together with annotated bank statements and credit card statements, and any related records, for a period of six years from the end of each tax year. Keeping non business items helps to demonstrate to HMRC that private expenses have been excluded from any claims. It is helpful to file, tax year by tax year, and preferably keep either paper or digital files.
7. How can I reduce my tax obligations in foreign countries?
The United Kingdom has double taxation agreements with most countries. It is the author’s responsibility to minimise the tax paid in the other country. If a tax can be avoided or reduced, and the author does not take action to organise this, HMRC can deny the relief. Claims should always be made under the applicable double taxation agreement. Claim forms have to be certified by HMRC and there are generally standard forms available for completion. Where forms are not available, a request for a Certificate of Tax Residency should be made online.
If you move abroad, you will no longer be liable to UK taxes on royalties as there is an exemption that covers any bona fide author carrying on the profession outside the United Kingdom. This is regardless of whether there is a double taxation agreement in place.
8. Under what circumstances might averaging be useful? Can you only claim retrospectively, i.e., after the second of the two years you’re averaging between?
Averaging can only be claimed where profits fluctuate. Once one year’s profit is less than 75% of the profit of the adjoining year, a claim can be made.
The claim can only be made on the tax return relating to the second of the two years the subject of averaging. It takes the form of an adjustment, calculated by reference to the profits of both years, but the tax for the earlier year is unaffected. The second year’s profit after averaging can itself be averaged with the figure for the third year, if there is sufficient fluctuation, and so on if fluctuations continue. Averaging cannot be applied to the opening or closing years of trading.
9. Is it better to have a separate business account? I also know a number of authors who operate through limited companies. Is this a good thing?
It is useful to have a separate account for work, because all authorship income is then recorded in one place, together with many authorship expenses. However, there will always be expenses such as home costs, telephone costs, car costs etc that will not be entirely for business and may well be paid through a personal bank account. When Making Tax Digital is introduced for tax returns in April 2026, it will be helpful to have a separate account for work as all information will be lifted from that account into the digital filing.
In terms of operating as a limited company, many authors do this because the Corporation Tax rate for companies is between 19% and 26.5%, compared with combined Income Tax and national insurance rates of up to 47% for individuals.
Income Tax is also payable on amounts withdrawn from companies at rates varying from 8.75% to 39.35%, depending on the author’s total personal income, so the overall tax liability can exceed that paid by the self-employed. Authors should not assign copyrights into limited companies without taking professional advice, because there can be substantial tax disadvantages, if the matter is handled incorrectly.
10. If I am earning very little – just a few bits from PLR and ALCS and the odd royalty – do I still need to submit a tax return? Even if it’s just £100 or so?
As long as you maintain that you are continuing as a professional author, HMRC will require a tax return. If you say you have ceased, HMRC might discontinue the tax return process, but you will still need to notify them of the income from time to time, so that tax can be collected. However, if your gross freelance earnings are £1000 or under, no declaration is necessary unless your expenses exceed your income, and you wish to claim relief for the loss sustained.
If your earnings exceed £1000 you can claim your expenses against this or £1000, whichever is the higher figure. The £1000 figure is called the trading allowance, and this cannot be used to create a loss for tax purposes.
For VAT, the compulsory registration limit is £85,000 UK earnings in any consecutive 12 months. Once you have exceeded this limit, you have 30 days to register. There is a penalty for registering late. It is possible to register for VAT at any time and authors will always save money by doing so.
You can access HW Fisher’s full tax guide for Authors and Freelance Journalists here.
Additionally, if you’re an author and you are interested in discussing your personal circumstances with Barry, you can get in touch with him here.