Many people fear paperwork, yet it needn't be complicated, and if you're writing with a view to selling your work and being paid for it, then you must keep records to satisfy the taxman.
Even if you work during the day and write in the evenings, it is possible to be employed and self-employed at the same time. In fact, until I became a full-time writer in 2004 (on 16th January at about 8.30am) I was both employed and self-employed. Before 2004, I worked for a local authority, but I was also writing and selling work, so the taxman taxed me as an employed person through the Pay As You Earn system at work, and then he taxed me on my self-employed writing earnings, when I told him what they were at the end of each tax year. At that time (figures have probably changed now, so do check them out at http://www.hmrc.gov.uk/selfemployed/index.shtml ), self-employed earnings of less than £15,000 could be declared on a simple form, which summarised your total income and total expenditure. The taxman deducted the expenditure figure from the total income figure, and then taxed me on the balance - my profits.
So, if I'd earned £1,000 and spent £200 on legitimate business expenses, I would be taxed on the difference, £800, not the £1,000 of earnings.
What with several books and income from many different sources, I now have an accountant do this for me, however, I still use simple systems to keep my paperwork in check. My accountant loves me, and hates me for this. He loves me because my paperwork is easy to process and he hates me because my paperwork is easy to process ... so he doesn't spend too long doing it and therefore can't charge me for spending days sorting it out!
As I hinted above, if you're writing with a view to earning money, then you're writing as a business. The tax man is interested in your profits - the surplus cash you make from selling your words after taking into account any expenditure you incur.
Almost any legitimate (that's the keyword - legitimate!) business expense can be offset against your income to reduce your tax liability, but the common ones I claim against are:
- Stationery (paper, pens, envelopes)
- Magazine subscriptions (Writing Magazine, The New Writer, Writers' Forum)
- Professional subscriptions (The Society of Authors, Bureau of Freelance Photography)
- Computer consumables (toner and ink jet cartridges).
Whenever I incur a legitimate business expenditure, I write a unique reference number on the receipt. The reference number begins with the tax year and then uses a sequential number. So, the first receipt for this financial year (2012-2013) will be labelled 12-13-01, the second one will be labelled as 12-13-02, and so on.
Then I have a simple spreadsheet, listing the date, the reference number, the type of expenditure (stationery, postage, etc) and the amount. When the expenditure has been logged, it gets dropped into a folder. That way, if ever there is any query, the spreadsheet quickly tells me the reference number and I can quickly locate the specific receipt.
The same goes for income. Most magazines and publishers send me a remittance form if they pay funds straight into my bank account. If they send a cheque, then these usually have a detachable docket attached to it too - so I simply add a unique reference number to each income remittance too. Then, I file those in a separate folder. Essentially, you only need two folders - one for income and one for expenditure and that's the paperwork sorted!
The spreadsheets enable me to quickly tot up total expenditure and total income, as well as enabling me to break down the information a bit more to see what I'm spending on stationery, or postage etc, but that's more for my own information, rather than the taxman's.
So, if you're writing and selling your work, don't forget that you can claim legitimate business expenses against any income you earn, so you only have to pay tax on the profit you make. And if ever you hit the big time and earn so much that you have to register for VAT, well, you're earning enough to pay someone to sort that one out for you, aren't you?