Tax & benefits for authors

We're campaigning for a fairer tax and benefits regime for authors.

The only thing that hurts more than paying an income tax is not having to pay an income tax.

Thomas Dewar - Income Tax, Pay, More

Current tax and benefit rules do not cater well for people who have portfolio careers, perhaps with a number of jobs as well as self-employment to sustain a creative career. Furthermore, the self-employed do not receive holiday or sick pay. They do not have employment security or company pensions and have no job security. They are often far worse off than equivalent employed workers.

Rights and benefits

In 2016, an EC study on authors’ remuneration which surveyed authors, journalists, translators and illustrators across Europe found that UK workers had less protection than in many other countries. For example the AGESSA scheme in France allows authors to receive benefits such as sick pay and unemployment benefit and pay reduced social security benefits with publishers and other content users making contributions to the fund. Similar provisions apply in Germany and other countries. 

We welcome the EU proposals to allow freelancers who work mainly for one or two employers to claim employee status and rights and would suggest that these be implemented as part of the forthcoming reviews by the Business, Energy and Industrial Strategy committee and the Work and Pensions Committee on the rights and treatment of non-permanent staff and the rules governing self-employed and employed status (which were shown to be failing in the recent Court of Appeal case concerning Uber).

Benefits

Emerging and struggling authors face difficulties in claiming benefits. We call for amendments to the Universal Credit and Working Tax Credit rules so that they encourage authors and the self-employed. Benefits should be structured to:

  • Incentivise innovators, not penalise them, if they voluntarily leave employment to concentrate on starting up a self-employed career.
  • Deal with “lumpy” incomes by averaging incomes over two years so authors are paid benefits in lean periods and do not fall out of benefits on receiving an advance or royalty cheque.
  • Avoid too much paperwork or difficulty for those with complex working arrangements

Tax

The complexity and bureaucracy of tax requirements are a huge disincentive to small businesses. The Government should take steps to simplify the tax regime and avoid too much paperwork or difficulty for those with complex working arrangements (including when dealing with overseas clients). We are very concerned that the trend is in the other direction and particularly about the ongoing uncertainty, and likely negative impact on authors and other self-employed people of changes to the tax regime for freelancers proposed in the Finance Bill 2017 and the Spring Budget Statement. There are two pieces of draft legislation that will hit authors particularly hard are:

  • Making Tax Digital (MTD), with its demand on businesses and freelancers with turnovers more than £10,000 to file a quarterly tax return.
  • The abolition of Class 2 National Insurance contributions, which will lead to a fivefold increase in the cost of pension contributions for freelancers earning (at present) less than £5,965 per year.

A third piece of draft legislation - the proposed increase of Class 4 National Insurance contributions for the self-employed, announced in the Spring 2017 Budget - has already been withdrawn following an outcry from self employed individuals and politicians. Having seen swift action from the Government act swiftly on the concerns of self-employed workers we hope that they will continue to understand the impact of their wider tax reforms.

Even among tax professionals there is currently a great deal of uncertainty about exactly how or whether MTD will work, and the chair of the Treasury Select Committee has said that the proposed timetable "looks unachievable". In the meantime, authors and other self-employed people, are left in limbo - unable to prepare for the changes.

Timetable

the current timetable for implementation is widely viewed as too short. As recommended by the Treasury Select Committee, we believe that the current timetable should be extended to 2019 to ensure that any new regime can be properly piloted, and its potential implications understood, with no penalties until it is shown to work.

Threshold

MTD will oblige any business or freelancer whose annual income exceeds £10,000 to file quarterly returns. Given that the average UK author income is £12,500, this threshold is far too low and is likely to put a disproportionate administrative and expense burden on lower paid freelancers. This is based on turnover, not the profit that remains after expenses have been paid. In line with Treasury Select Committee recommendations, we believe the minimum threshold should be brought in line with the VAT registration threshold of £83,000.

Increased overheads

The FSB estimates that the changes will cost the average small business an average of £2,770 a year, in addition to the amounts they already spend on tax advice. The Government has estimated this is more likely to be “a one-off transitional cost of £280 per business”, but with authors already struggling to make a living from their work any additional expense is likely to cause hardship to many.

Exemptions

We understand that HMRC is considering exemptions to the proposed changes. Many authors have variable work patterns (books and other works often take more than two years between commission and publication) and an unpredictable income, which means that some years they may earn significantly more than the threshold but other years significantly less. We believe this will lead to confusion about which years those authors are obliged to file quarterly and when they are not. Amendments should be made to ensure that there is a two or three year averaging period.

Digital exclusion

Many members of the Society of Authors, although earning from their work, do not possess the digital skills or equipment necessary to engage with MTD, and at this stage in their careers are unlikely to do so. It is unclear what advice, training or additional assistance they will receive to ensure they do not incur unnecessary penalties. It is hoped that those who are digitally excluded through a lack of skills or equipment will not be treated detrimentally, for example with shorter deadlines as happens with self-assessment.

Abolition of Class 2 National Insurance

While MTD is set to affect authors earning more than £10,000 per year, those earning less than £5,965 per year will be affected by the abolition of Class 2 National Insurance contributions. These lowest earners currently pay £2.80 per week in contributions that count towards their state pension, opting in to a system that allows them to contribute towards their retirement at an affordable rate despite their modest means. From April 2018, the contributions needed to secure a future pension will increase to £14.10 per week – representing at least 12% of their annual income.

Value Added Tax (VAT)

There is a major anomoly in the VAT system today that sees 20% VAT charged on ebooks and digital publications, while printed books and magazines are zero rated.

This is inconsistent, hinders the digital circulation of books within the EU, causes unnecessary complexity - particularly when printed and digital copies are bundled together - and we believe it amounts to a tax on knowledge.

On 2 June 2017 97% of MEPs voted in favour of allowing individual EU countries the right to reduce the VAT rate on ebooks. Now that there is no EU legislation preventing ebook VAT in the UK from being brought in line with printed books, we hope to see a swift respose from Government that is no longer dependant on the outcome of Brexit negotiations.

What Can You Do?

Upcoming changes to the tax regime are likely to place a considerable burden on many self-employed workers, in particular those on lower incomes. This is a good opportunity to raise awareness among our politicians of the impact the changes will have and for an increase in the MTD registration threshold to £83,000.

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