VAT for Authors

VAT for authors

VAT for authors can be quite a complicated issue. Many authors have a mix of UK income and overseas income. And many authors receive their income via an agent who has already deducted commission. It’s also a real area of concern as no one wants to get things wrong with the VAT man.

Here are some of the questions we’re often asked together with some tips for getting things right and even saving some money.

Can I register early to save VAT?

The VAT registration threshold is currently £85,000. This means you must register for VAT when your sales exceed £85,000 in the last 12 months. However, you can voluntarily register for VAT before this point. The reason why you may want to do this is to recover the VAT you are being charged – typically by your agent.

For example: A writer gets a publishing deal for £25,000. Their agent charges 15% commission plus VAT. If they are not VAT registered they’ll lose the agent VAT of £750. But if they are VAT registered they’d be able to recover this.

Being in the “VAT club’ will allow you to recover VAT on all your other business expenditure. For example, computer costs and accountancy fees.
Whether it is a good idea to register early depends on your circumstances. If you’re not incurring much VAT then it may not be worth the hassle. And some people would rather have an easier life than save some tax.

You also need to factor in the additional costs and accountant they charge for preparing your VAT returns.

Finally, it may be worth registering for VAT early as a protective measure. It is never a good idea to go over the VAT threshold and fail to tell HMRC. If you know that you are likely to go over the VAT threshold then you can avoid the potential problem of missing the deadline by getting your registration in early.

How do I know if I have gone over the threshold?

In order to calculate whether you have exceeded the VAT threshold you need to look back over the last 12 months.

It’s important to remember that the period is not a calendar year or your financial year but a rolling 12 months.

To calculate whether you have exceeded the threshold you’ll need to keep a proper record of your sales each month. Unless you have instructed an accountant to monitor this for you it will be your responsibility. Often people only discover they have exceeded the threshold when an accountant prepares the year-end accounts.

What if I’m late registering for VAT?

If you go over the VAT threshold and don’t tell HMRC then they will treat you as if you have been charging VAT and you’ll owe them VAT from whenever you should have been registered. Sometimes this can be a sizeable amount of money.

It is sometimes possible to ask your customers whether they will accept a “VAT only” invoice so they pay you the VAT now. But there’s no guarantee that they will accept a late invoice and there’s no requirement that they do.

Being late registering doesn’t just mean that you have the VAT to pay. HMRC may also look to charge penalties. There are more details on HMRC penalties here.

What do I include in my sales for VAT?

You need to include all your UK sales and any foreign sales collected by your UK publisher. You can exclude any direct foreign sales (such as Amazon self publishing or sales you or your agent have agreed with a foreign publisher).

If you’re a sole trader you can exclude any employed income. But, if you are self employed as something else too (eg you’re a plumber and a writer) then you need to aggregate both sets of income. The VAT registration belongs to the person not the business.

You also need to be careful about how you record your sales when you are paying commission to an agent. The figure that it is important for VAT is your gross sale before agent commission is deducted. As you are receiving a lower figure it’s easy to get this wrong.

For example: A writer gets and advance of £10,000. The agent deducts 15% plus their VAT and so the writer only receives £8,200. The figure that counts towards the VAT threshold is £10,000

Can I get back any VAT from before I register?

Yes – when you first register for VAT you can reclaim VAT on goods purchased up to four years prior to registration provided they are still held when registration takes place. VAT on services supplied in the six months prior to registration may also be reclaimed.

Is the VAT flat rate scheme a good idea for writers?

It was a great idea but not any more. New rates mean that most writers would be classed as “limited cost traders” and have to apply a rate of 16.5% to their gross sale.

For example – a writer gets a £1,000 advance. They charge £200 VAT and receive £1,200. Under the Flat Rate Scheme they would pay £1,200 x 16.5% = £198 to HMRC – saving only £2 of VAT. A better option would be to use the regular VAT scheme so they can recover all the business VAT incurred.

What things can I claim back VAT on?

Here’s a list of things you can typically claim back VAT on. But remember – you’ll need a valid VAT receipt in order to recover VAT. A credit card slip won’t do it, and the VAT man won’t accept your explanation that “I bought it from Argos so it’s obviously got VAT on it!”. You need proper VAT receipts.

Usually has VATUsually has no VAT
Agent commissionTrains, planes and taxis
Accountancy feesSoftware subscriptions from overseas
Computers and UK softwareEntertainment
Internet and mobile phoneInsurance

Don’t forget to read our guide to Tax deductions for writers for more details on some of the things you can claim for.

Disclaimer: this article is to give you a taste of some of the issues surrounding VAT for authors. It’s no substitute for proper professional advice for your circumstances.