Thursday, January 15, 2009

The Taxman Cometh .....

If there is one down side to freelance writing, it's the fact that at some point you have to tell the taxman. Actually, I would suggest telling the taxman as soon as possible. Here in the UK it is quite possible to be employed by an employer, and self-employed at the same time.

As long as your self-employed income is relatively low (and by that I mean something like £15,000 - but do check this out on the HMRC website ) then all you have to do is complete the basic tax return each year and the supplementary sheet for 'other income'. On this supplementary sheet you list all your writing related income and all your writing related expenditure. The difference between the two is your profit (hopefully) and this is what you are taxed on. If you make a loss, you may even be able to claim back some of the tax you've paid on your employment salary! Keeping records is therefore important.

Of course, since becoming a full time freelance writer, I'm purely self-employed which means that as well as paying the tax on the income that I earned in the previous financial year, the lovely tax man also decides that I should make a payment upfront towards this year's tax, even though he doesn't know how much I've earned (if anything!). And I can confirm that he is a regular kind of guy - and by that I mean consistent. For the past five years, he's always sent me a tax demand for my upfront payment in time for the postman to deliver it on Christmas Eve. Happy Christmas! Christmas cards arrive late during the Christmas period. My bank statements arrive late too. But my tax demand always arrives on Christmas Eve! Uncanny.

Keeping records is actually straight forward. All I do, is maintain a simple spreadsheet and give every receipt and every piece of income a unique sequential number (1, 2, 3, 4, 5 and so on). I write that sequential number on every receipt and remittance slip I get. I file my receipts in one plastic wallet and my remittances in another. That's all there is to it. Then at the end of the financial year I merely print out my spreadsheet, which gives me my total profit (hopefully) and check that I have my uniquely numbered paper records for every receipt and remittance.

This is all the information you need to give to the taxman.

Because I'm purely self-employed I do employ an accountant to check my figures and produce an annual set of accounts for me, but his costs are relatively cheap because he says my paper records are always in good order and my accounts are easy to do.

The reason I mention all this now is because I've just written out my cheque today to pay my tax for what I owe in advance. Murphy's Law says that when the end of the tax year arrives in April, I'll have paid too much and he'll have to give me some of it back.

But if you're in the early stages of your writing career, do take time to get your paperwork in order. Develop a system now, so that when the end of the tax year arrives in April, you can lay your hands on the information easily. Perhaps you can make it a New Year's Resolution to get your business finances in order? Remember, the taxman loves an organised person because they pay their tax on time. But he loves a disorganised person even more, because he can probably charge them more tax, or late payment penalties because a disorganised person doesn't know how much they should be paying! For more information about being self-employed in the UK, click here.

Good luck!