Small income earned from writing - do I need to declare it?

mrsmcbunny

I am a full-time employee earning £38K per annum. I do not fill out a tax return as all of my income/ taxation is related to my main job.

Recently I have had a short story published for which I earned the princely sum of £25. I will also be due royalties however these are likely to be very small sums and I have not received any yet. The question is, do I need to declare this and pay tax on it? For £25 it hardly seems worth the paper it is written on or the tax office's time to make any amendments - yet it is earned income.

However, looking at the bigger picture I'm currently working on the second draft of my first novel. Clearly I am hoping that it too will be published. Is there a threshold where I have to contact the tax office? I understand that if I was writing full time I could claim allowances for the use of my home to write etc yet I intend staying at work full-time so I'm not sure how things would work. Perhaps naively I thought that if I put any cash earned from writing straight into my AVC's that there would effectively be a tax neutral effect. I'm guessing I'd still need to fill in a tax return though.

Any inital advice would be much appreciated. Clearly I will need specialist advice should I start to derive a regular income from writing however I would really appreciate an understanding of what I need to do with my little bit of income in this tax year.

Thanks in advance!!!

jimmo

At 20% the tax on your £25 comes to the princely amount of £5 and is hardly worth bothering about.
However, strictly speaking, you must declare your income and if you fail to do so you will be guilty of failure to Notify Liability.
http://www.hmrc.gov.uk/manuals/emmanual/em4551.htm
The maximum penalty for that is an amount equal to the tax due.
http://www.hmrc.gov.uk/manuals/emmanual/em4552.htm
So, if HMRC catch you, you may have to pay a maximum of £10.
On the other hand, assuming the publishers report the payment to HMRC, HMRC will have evidence that you have failed to declare a source of taxable income and may then wonder whether there is anything else you are not telling them and start digging.
Just to be on the safe side you should notify HMRC, a phone call should do, of your £25 income. Its highly unlikely they will be bothered about £5 but that is then their decision, not your offence.
Turning now to expenses you have almost certainly incurred expenses in writing the short story and in writing the novel. Use of your home, power and computer costs are the most obvious. Also, what about research?
Whether its worth the effort you would have to put into it is another matter but the tax principle is that you can claim to reduce the tax you may have to pay on you £25 income so far and carry forward losses to be available to set against any future profits when your novel is hopefully published.
I guess that if your novel flops you will rue the time you spent establishing your losses for tax purposes. If you become a best seller these petty little tax matters will hardly matter. If you achieve a modest income from your writing in the future and don’t bother creating records and establishing losses now, you may have missed a tax saving opportunity.

mrsmcbunny

Thanks Jimmo, that's really helpful. I will pick up the phone to the tax office forthwith.

The Writers and Artists yearbook has a really good section on allowable expenses etc however I dismissed it because I do not write full-time. However, I have uncurred costs relating to printing, postage and research and I think that you are absolutely correct, I should log these now just in case I get published in say, the next financial year.

Thanks again for your assistance.

jimmo

Have you spoken to HMRC?
If so, what did they say?
If they put you into Self Assessment you will have to complete annual Tax Returns.
If they don’t then, under current legislation, you have 4 years to claim your losses.
It would probably be wise for you to do a bit of homework to ensure you create and maintain good records as evidence of the losses but, for the next couple of years at least, there will be no need for you to contact HMRC.
I will be happy to explain that once we know which direction HMRC is taking you.