Understanding Self-Assessment Tax

Sarah self-published her debut novel last year and earned £35,000 from book sales, speaking engagements, and writing workshops. As a self-employed author, she needs to report this income through self-assessment.

The UK tax year runs from 6 April to 5 April. Sarah must:

• Register for self-assessment by 5 October after her first tax year
• Submit her online tax return by 31 January following the tax year
• Pay any tax due by 31 January
• Make payments on account (advance payments) by 31 January and 31 July

For Sarah, assuming this is her first year of significant earnings, her tax and National Insurance bill comes to £8,000. For the year ended 5 April 2024 she must pay this by 31 January 2025 for the 2023/24 tax year.

• Additionally, she needs to make two payments on account for the following tax year:
• First payment: £4,000 (50% of previous year's bill) by 31 January 2025
• Second payment: £4,000 by 31 July 2025

Sarah can deduct business expenses from her income to reduce her tax liability, you can find a list of authors expenses. It is important for her to keep the following records to prepare accurate accounts and to protect herself in the case of an HMRC enquiry:

• All income from book sales, royalties, and related activities
• Receipts for business expenses
• Contracts and correspondence with publishers
• Bank statements showing business transactions

We always recommend that Authors operate their business income and expenditure through a dedicated bank account linked to an online accountancy package. This will make recordkeeping far more streamlined and less like a last-minute chore.

To avoid cash flow issues, authors often set aside a percentage of their income for tax purposes. This not only helps manage the initial tax bill but also the subsequent payments on account.

Understanding this system helps authors focus on their creative work while staying compliant with tax obligations. Professional advice from an accountant can be invaluable, especially when dealing with international royalties, authors averaging or complex income streams.

Want to find out how we can assist you, please feel free to contact us on a no obligation basis.