Note: My non-fiction book How to Self-publish and Market a Children’s Book (Second Edition) is out in print and as an eBook 🙂 Whether you’re just starting out with self-publishing or are part way through your journey this comprehensive resource provides practical guidance for planning and creating picture books, chapter books or middle grade novels and (crucially) tried and tested strategies for selling more books through author visits to schools, other events, local bookshops and online through advertising and social media marketing. Find out more and about what’s inside this new edition for May 2021 here.
Updated September 2019 and January 2020
Please note that I am not a tax expert or adviser so always check the facts with HMRC or an accountant if you are in doubt. HMRC’s twitter feed is also a good place to ask quick questions!
If you’re a UK-based author starting to get income from your book sales it’s important to know what you need to do about tax. HM Revenue & Customs (HMRC) will count such income as ‘business income’ – however small – and, depending on how much you are earning, you may need to register to complete a Self-assessment Tax Return and pay Income Tax and National Insurance on your earnings.
But don’t panic yet! You will only pay tax on your book royalties if your overall income (from your books and any other sources, such as your day job, interest on savings, etc) is above a certain level. And the rate of tax you will pay will depend on that overall level of income. Similarly, you will only need to pay National Insurance if your income from the book sales is above a certain level.
Also (update January 2020) you will only need to register to complete a tax return for the first time if your income from royalties is above £1,000 in the tax year, which runs from 6 April to 5th April (assuming you have no other self-employed income that takes you above the threshold).
So how do you declare your book royalties if they exceed £1,000?
For most UK authors starting out, the way to declare and pay any tax due on your royalties is to register as a self-employed sole trader with HMRC. (You could look at setting up a limited company but I won’t cover this here – see the links at the end of the page to find out about other business structures.)
Once registered as self-employed you’ll need to complete a self-assessment tax return each year. This is basically an online (or paper*) form on which you declare all of your income – from employment, savings, any investments or rental income etc – for each tax year (remember: a tax year runs from 6 April to 5 April). You would include your income from book sales in the self-employment pages.
The good news is that here you can also put down any expenses associated with your book writing as these get deducted from any profit you make before any tax is worked out. And, more conveniently, there is now a £1,000 Trading Allowance that you can choose to use against your income from self-employment income instead of claiming expenses separately if these are £1,000 or less – this is much makes life much easier than it used to be. Remember to keep records of your expenses nevertheless.
How to register as self-employed
You can register as self-employed quickly and easily either online at gov.uk here or by phone by calling HMRC on 0300 200 3500 and saying to the automated message request that you’re calling to set up as self-employed. Make sure you have your National Insurance number to hand if you have one. (The initial message tries to steer you to register online, but if you hang on and speak to the operator you can do it entirely over the phone – or certainly that was the case when I last tested it in 2018.)
Register as soon as you can if you think that income from your books is approaching £1,000 – the deadline for completing a paper tax return each is 30 October* and 31 January for online returns, so leave enough time to be sure you can meet these dates. According to the gov.uk website, if you register later than 5 October in your second tax year of business, you could be charged a penalty. (NB Ignore the automated message that says ‘you can only register during the week you start work’ – this apparently means that you can only register ‘in advance’ in the week you become self-employed.)
*(I believe the option to file paper returns is available only to very few people now, eg those who have always filed paper returns.)
Class 2 National Insurance
Once registered as self-employed you’ll automatically pay Class 2 National Insurance if your annual taxable profits from self-employment (book sales for this purpose) are £6,365 or more a year per year in the tax year 2019-20. Class 2 National Insurance is charged at a flat rate of £3 per week (2019-20) and included/accounted for in the tax bill you receive after sending in your tax return.
If you have low earnings
If your book royalties are below the Class 2 thresholds then no Class 2 National Insurance is payable. However bear in mind that Class 2 contributions count towards your entitlement to the State Pension and other benefits, so if you’re not already paying Class 1 through the day job, you might decide to pay Class 2 voluntarily even if your income is below the threshold. Ask HMRC about this when registering as self-employed, or you can read about paying voluntary contributions on the gov.uk website here.
Class 4 National Insurance if books sales are flying!
If you’re lucky enough that the taxable profits from your book sales are £8,632 or more for 2019-20 you will pay Class 4 contributions on any profit above these amounts at a rate of 9% for profits between £8,632 and £50,000 and 2% for any element of profits above £50,000. You don’t need to do anything about this now – the profit is worked out when you complete your self-assessment tax return each year and is included in your annual tax bill.
Do I really need to complete a tax return every year if I only have a few sales?
Speaking to the HMRC helpline back in April 2016 it seemed the answer to this was ‘yes’ – to start with at least. However, once you send in your first couple of returns, if they see that your income from book sales is small they may contact you and offer to take you out of self-assessment and allow you to estimate and pay your income in a simpler way – for example through your day-job payslip. Either way, think positively! Small sales may grow faster than you expect. And if you’re serious about your writing, once you are set up in self-assessment it may be as simple just to stick with it so that you’re ready for when the surge happens…
More useful tax links for UK authors…
You can find out more about self-employment, self-assessment tax returns and other business structures by using the links below:
- Self-assessment tax returns – info from gov.uk
- Self-employed National Insurance rates – gov.uk
- Choose a legal structure for a new business – gov.uk
- Self-employed record keeping – info from HMRC
- UK Income Tax rates and thresholds – gov.uk
And remember to check out my related post about how to reclaim tax on US royalties
Tax doesn’t have to be taxing….!
Updated January 2020