Help IR35 and royalties tax

daffynspacegirl

I'm a self employed artist and have recently completed a set of 6 book covers for a publishing company. I agreed to be paid by royalties rather than a flat fee, a. to help the publishers out, b. the life of the book is about ten years before it goes out of print. and c. the book is sold world wide so I figured big sales.
I recevied my first 6 month statement and cheque, it was a healthy sum however the publishers had deducted the tax from the final cheque. When I called to find out why, I was told that apparently I fall under the IR35 group and they were responsible for my tax (??).
After reading up (as best I can) I dont understand why it effects me. I was given a book title and what it was about, I was given free reign to do what i wanted photography, airbrush, paint etc. I created half a dozen different designs for each cover and together they got exactly what they wanted and were over the moon with final images. There was no bill obviously because it was book sales not hourly rate.
I realise that I can claim any tax owed to me at the end of the tax year, but am annoyed because I could use that money now and surley I'm responsible for my own tax.
Can anyone help or advise?

Cook_County

IR35 is ONLY relevant if you used a company (which you did not).

I cannot follow why UK tax should have been withheld unless they think you are an employee.

Can you ask them again saying you are confused by their explanation?

daffynspacegirl

I've been told that their accountant is adament that they tax me or their business will be paying me illegally. Then they went on about comparing me to a self employed builder setting up a business going bust, starting again with no debt. It was all a bit bewildering and as I couldnt talk to the person who made the decision information was a little grey. I do think that they are justifying it by indirectly making me out to be an employee, is it because I'll be getting a cheque every 6 months like an employee payslip?
I feel a bit over a barrell here, I've never been payed by royalties before or indeed heard of IR35 untill now. I dont want to get into their bad books (no pun intended) because I may get more work from them.
I shall try to get something from them, but speed isn't in their dictonary.

Murtle

if they are classing you as an employee then they should be paying you holiday pay, sick pay etc.. which I doubt they are. IR35 is aimed at contractors who work for themselves, and want to pay themselves dividends as opposed to salaries. This doesn't apply to self employed people, you are liable for your own tax, and they shouldn't be paying it for you. See if you can have a word with an accountant - or wait until one comes along, I'm not sure if they are like buses here, in the sense of two coming along at once.....

daffynspacegirl

No I get no other monies (holiday,sick, expenses etc). I only get a cheque and sheet of paper with costs breakdown and sales figures, which is another fault (?) I found. Costs breakdown sheet has the usual info on, printing, postage etc but I did notice that the author was also on royalties (I dont think i was supposed to have had that coloum in my sheet). After all the usual costs were deducted from the final profit the author recived their 15% royalty then from that figure I had my % deducted. Is that right? Surely everyones % comes from the same final profit figure? Or am I being stupid (maths was never my forte)?

telly-addict

Cook_County wrote:

IR35 is ONLY relevant if you used a company (which you did not).

I cannot follow why UK tax should have been withheld unless they think you are an employee.

Can you ask them again saying you are confused by their explanation?

I would agree that because you have not provided your services through a company or partnership ( an intermediary, in the wording of IR 35) it is hard to determine why you have been treated in this way. Go back to the publishing company and ask again.

Regarding the calculation of the profit figure upon which your own and the author's royalties are based, I imagine it depends on what is in the contract between you and the publishing company. I should imagine it is entirely possible that the author's contract determines profit in a different way to yours? Again, another question for the publishing company.

My recollection of taxation of copyright (presumably?) royalties is that they are paid gross to you and taxed as earned income (technically charges on income). Could be worth a call to a local firm of accountants and get a free introductory meeting that could yield some helpful advice.

WHA

If you regard yourself as self employed, presumably you have registered as such with the Inland Revenue (law requires you to do this within 3 months of starting self employment). You can tell the publishers that you are registered self employed and the royalties must be paid gross. I think the publishers are "covering their backs" in that it is they who are liable to tax and NIC if the IR decide that you aren't self employed and the IR are getting tougher. You may need to provide proof of self employment, such as a confirmation letter from the IR (acknowledging your notification of self employment), letter from IR regarding self employed NIC contributions, or anything else "official" confirming that you are declaring yourself self employed so that the publishers have something "on file" to safeguard themselves.