Royalties, job income and tax

by **cyrus193** on Fri Oct 22, 2010 10:45 pm

I'm an author of a book that has begun to sell fairly well, however i still have a job and i was wondering if my royalties are taxed along with my salary income? if so what taxes are used on my royalties and usually at what percentage? apparently if royalties are my only income i have a lower tax rate but im not sure, id admire you alot if you could explain how this all works and if you know of a website with information on this I'd much appreciate it. thank you

by **JRG** on Sat Oct 23, 2010 12:58 am

You have a Personal Allowance of £6,475 (if aged up to 64), which is the amount of your TOTAL income that is free from income tax. Any income above that figure is taxable, which is liable to income tax at various rates from 20%, through 40%, to 50%, depending on the actual amount.

For your job you would normally have a 647L tax code (representing £6,475). Assuming your job's salary exceeds your Personal Allowance, you would have to pay income tax on the full amount of your royalties.

As an author HMRC may consider you to be self-employed, in which case you must register with them as such. At the end of each tax year you should complete a self assessment form detailing both your job income and royalties income, together with the income tax paid for each. HMRC will calculate your income tax liability and advise you whether you need to pay more income tax or not. If you receive your royalties net of income tax, and provided you aren't a higher rate taxpayer, there should be no extra income tax to pay.

by **cyrus193** on Sun Oct 24, 2010 8:34 pm

JRG wrote:You have a Personal Allowance of £6,475 (if aged up to 64), which is the amount of your TOTAL income that is free from income tax. Any income above that figure is taxable, which is liable to income tax at various rates from 20%, through 40%, to 50%, depending on the actual amount.

For your job you would normally have a 647L tax code (representing £6,475). Assuming your job's salary exceeds your Personal Allowance, you would have to pay income tax on the full amount of your royalties.

As an author HMRC may consider you to be self-employed, in which case you must register with them as such. At the end of each tax year you should complete a self assessment form detailing both your job income and royalties income, together with the income tax paid for each. HMRC will calculate your income tax liability and advise you whether you need to pay more income tax or not. If you receive your royalties net of income tax, and provided you aren't a higher rate taxpayer, there should be no extra income tax to pay.

Thank you for explaining this to me =) my salaries around £30,000 but my royalties fluctuate yearly from like £100k to £300k (im basing this on book sales since im saving the money in a building society) so will i be taxed around 50% for the money iv saved once i tell HMRC, like you said about my predicament will they take away half or even $0% of my saved money or just leave it? and if so will these tax reductions be automatic? say the tax will be taken from my royalties before they enter my bank account? thank you

by **JRG** on Mon Oct 25, 2010 2:01 am

Whether you receive your royalties gross (i.e. without income tax being deducted) or net (i.e. with income tax being deducted), when you complete a self-assessment form HMRC will send you a statement of account showing it's calculations of your tax liability, and indicate how much you have to pay (if any). This payment is usually to be made by the 31st January following the end of the tax year.

In your situation, with the amounts involved, you should employ a good tax-knowledgeable accountant, who may suggest ways of minimising your tax liabilities.

by **mullet** on Mon Oct 25, 2010 8:59 am

once i tell HMRC

Do you mean "once you return the income", or do you mean "once you have told HMRC that you have this source of income"? In other words, have you notified HMRC of this income and are you within the self assessment system?

indicate how much you have to pay (if any).

Surely an accountant would have to be a miracle worker (or use a scheme) to achieve nil liability on additional income of £100K to £300K (did you notice the "K" JRG?) per year? Even if 20% is withheld at source.

by **cyrus193** on Mon Oct 25, 2010 5:32 pm

JRG wrote:Whether you receive your royalties gross (i.e. without income tax being deducted) or net (i.e. with income tax being deducted), when you complete a self-assessment form HMRC will send you a statement of account showing it's calculations of your tax liability, and indicate how much you have to pay (if any). This payment is usually to be made by the 31st January following the end of the tax year.

In your situation, with the amounts involved, you should employ a good tax-knowledgeable accountant, who may suggest ways of minimising your tax liabilities.

Thank you so much for explaining how it all works to me! you have no idea how much i appreciate your help and knowledge!

by **cyrus193** on Mon Oct 25, 2010 5:41 pm

msp wrote:
once i tell HMRC
Do you mean "once you return the income", or do you mean "once you have told HMRC that you have this source of income"? In other words, have you notified HMRC of this income and are you within the self assessment system?
indicate how much you have to pay (if any).
Surely an accountant would have to be a miracle worker (or use a scheme) to achieve nil liability on additional income of £100K to £300K (did you notice the "K" JRG?) per year? Even if 20% is withheld at source.

you misunderstand, i didn't esquire into how the tax worked for my royalties, the money simple gets put onto my account by my publisher (or who ever deals with it) and i spend it but i've decided to save up the money & haven't found time to check the amount i have recently (last time it was £100k). i wasn't sure if i was getting all my money or if it was being taxed. ,i just needed to understand what was going on, and i was basing the amount of money on how many book sales I've had so far.

and as you said i can assume that my accountant must be taking care of these issues (or has assumed i have).

by **mullet** on Mon Oct 25, 2010 6:00 pm

and as you said i can assume that my accountant must be taking care of these issues (or has assumed i have)

I think you need to check things out here ... has the income been declared? It has to be declared as you earn it, not as you receive it or spend it. And going back one step, do you receive tax returns? If so, then surely the income has been declared? If not, then have you notified chargeability? Something doesn't seem right here.

by **JRG** on Tue Oct 26, 2010 8:09 pm

msp: Yes, I did notice the 'K'. I'm just wondering who Sir Philip Green's accountant is? Or Tony Blair's.

by **RAL** on Tue Oct 26, 2010 8:23 pm

Couple of points.

I thought copyright royalty is paid GROSS and Patent royalties are always paid net of basic rate tax.

@ OP

As you are an author you may be able to use special rule "averaging of profit". As commented you need to check things out and make sure you are compliant with the rules and making use of any special rules available.