Paying Tax on Royalties

by **JohnDesign** on Sun Feb 06, 2011 6:03 pm

Hi,

Firstly sorry if my questions are obvious but I am really just after some simple easy to understand answers.

I currently work full time as a junior designer for a company and get paid around £20k PAYE. During my spare time I design and make products and have had two designs put into production by a company. Over the last 6 months I have received around £3,000 in royalty payments.

Do I need to pay tax on this and what is the procedure I need to take to make sure everything is done correctly?

I have also started to produce small runs of my designs myself but am only making very small profits say £50 a month. I am keeping all receipts and incoming/outgoing payment records. So I know what profit I have made come the end of the tax year.

What do I need to do about paying tax on this?

I am guessing that I need to register with the Inland Revenue and then simply fill out what I am earning from my own designs/royalties outside of my full time job and pay the correct amount of tax in this (20%?)

Any help on this would be really appreciated.

Thanks

by **Loza** on Sun Feb 06, 2011 6:56 pm

You need to register as self employed, the result will probably be that your tax code will be revised to base rate.
You will also be liable to class 2 NI unless your annual profits are less than the small earnings exception (£5,075).
Patent royalties are paid net of basic rate tax so you will probably be due a repayment after the end of the tax year.
Look for a reasonably priced accountant in your area.

by **JohnDesign** on Mon Feb 07, 2011 1:40 pm

What should I expect an accountant to charge for this type of work?

I'm not too bad with numbers. How easy is this to do yourself?

by **johnjames92** on Fri Feb 18, 2011 12:21 am

What type of tax I am supposed to pay? I just registered this company http://www.magnatewebdesigns.co.uk. I have two employees at the moment. Help please.

by **innovativetax** on Fri Feb 18, 2011 2:46 am

If your operating vehicle is a company, it is subject to corporation tax on its profits.

If you have two employees, you should operate PAYE on earnings you paid to them.

Hope this helps.

by **RAL** on Fri Feb 18, 2011 9:59 am

johnjames92 wrote:What type of tax I am supposed to pay? I just registered this company http://www.magnatewebdesigns.co.uk. I have two employees at the moment. Help please.

As commented earlier, you set up a limited company. You have a lot more compliance work to do being limited company. Here is a brief list of the things you need to do.

1. Prepare full statutory accounts, HMRC require a copy of it.
2. File abbreviated accounts at companies house
3. Company pays Corporation tax on the "Taxable profit", please note that taxable profit may differ to the accounting profit as you require to adjust the accounting profit for the tax purpose. You have nine months and a day from the chargeable accounting period.
4. If you employ than depending on the employee's circumstances and how much you pay, you may need to register as an employer, you may have to deduct tax and ni from the employees pay and as an employer you may have to pay NIC. You need to pay this over to HMRC on monthly or quarterly basis.
5. You need to file annual return with the companies house.
6. For first year you may need to file two Corporation tax return. You have one year from the end of the accounting year to file it.

HTH