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.

Making Tax Digital (MTD)

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".

Part of the issue, according to this useful guide from Rebecca Cave of TaxCalc is that the entire MTD project is being 'developed in an agile manner, which means the law is being formulated as the project progresses, so we don't yet have a full picture of how MTD will apply to all taxpayers or to all taxes.'

In the meantime, authors and other self-employed people, are left in limbo - unable to prepare for the changes.

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.

Timetable

The Government appears to have taken some note of criticisms from self-employed people, tax specialists and the Treasury Select Committee, softening their original 2018 go live date so that only taxpayers whose turnover exceeds the £83,000 VAT threshold will need to start reporting in 2018. Anyone below that level will start reporting in 2019.

As of June 2017, the planned timetable for taxpayers to commence reporting under MTD is as follows:

  • 6 April 2018: Businesses with turnover exceeding the VAT registration threshold, to report income and expenses which are subject to income tax and Class 4 NIC.
  • 6 April 2019: Businesses with turnover exceeding £10,000, to report income and expenses which are subject to income tax and Class 4 NIC.
  • April 2019: All VAT registered businesses, to report income and expenses which are subject to VAT - in essence, the information on the VAT return.
  • April 2020: Businesses which pay corporation tax, to report income and expenses subject to corporation tax - i.e. the information on the corporation tax return. Also all partnerships with turnover of £10 million or more.

We understand that there will be a further consultation on MTD for limited companies. We will of course share news of this when we have more information, and encourage affected members to contribute to it.

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

HMRC has confirmed a number of exemptions to MTD (see below), however it has not yet confirmed when or how taxpayers will be able to apply for these exemptions, although they have promised they will make a straightforward, non-digital method available for this. There has also been no detail on whether a taxpayer will be expected to apply for exemption only once, or whether they will need to reapply at intervals. We will continue to seek clarification on this.

The following taxpayers are exempt from MTD reporting:

  • taxpayers with total annual turnover, including rental income, of under £10,000
  • charities and community amateur sports clubs (CASC), but trading companies which are owned by charities are not exempt from MTD
  • taxpayers who meet the definition of being 'digitally excluded'
  • insolvent businesses
  • partnerships which only receive income from OEICs or REITs
  • Lloyd's underwriting partnerships.

For their purposes, HMRC will define digital exclusion as:

  • The person or partner is a practising member of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records, or for any reason (including age, disability or location) it is not reasonably practicable for the person or partner to use electronic communications or to keep electronic records.
  • For a partnership to be exempt from MTD reporting on the basis of digital exclusion, every partner in that partnership must be digitally excluded.

We expect that a significant number of our members will be eligible for exemption as it has been specified, so we will publish details of how to apply for it and how it will work, as soon as we find out ourselves.

However, these exemptions do not answer our previously published concerns that 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. Further amendments should be made to ensure that there is a two or three year averaging period.

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)

To introduce VAT would be to put history into reverse. It would be like re-enacting the old taxes on knowledge which were finally repealed only after a long and testing struggle. More than knowledge is at stake, however, in an age of electronic technology. The capacity of books to divert and entertain, as well as to instruct, is one of their great attractions; and anything that threatens literacy is the worst threat of all.

Asa Briggs writing in The Author, October 1984

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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