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Newth Talks Tax - Tax writer of the year John Newth solves your tax questions

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18th Jun 2007
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Allowable expenses – Author and lecturer

Vikram disclosed, on 4 January 2007, that his client had recently written a book which has been published. The client had received a small advance of royalties in January 2006. What expenses can be claimed against this amount in the 2005/2006 tax return? The client has also started lecturing. Again, what expenses can be claimed?

Phil Rees replied to this one, and suggested that the expenses claimable for tax would be exactly the same as for any self employed business.

One assumes that, for the purposes of his writing and lecturing, the client is self-employed. Perhaps he also has an employed job, and for the time being writing and lecturing are part time self employed activities.

On this basis the profits of the operation will be assessable under Part 2 of ITTOIA 2005, formerly Schedule D, Case II, as a vocation. I can see no reason why the writing and lecturing activities cannot be treated as one business. They go together logically. Assessment in this way gives flexibility in relation to losses claimable and the net income qualifies as relevant UK earnings for pension premium purposes. Such treatment would not be available if the business was assessed under part 5 of Chapter 8 of ITTOIA, formerly Schedule D, Case VI.

Finance Act 1998 introduced a mandatory ‘true and fair’ basis of accounting for professional writers. Since 2002 the requirement has been that the accounts should be prepared in accordance with Generally Accepted Accounting Practice.

As far as the client is concerned, the impact of these provisions applies to royalties. When royalty income is receivable, at whatever intervals, it should be accounted for when the contractual entitlement to the royalty income is achieved. In the case of the advance received by the client in 2005/2006, it is taxable in that year if the client has become contractually entitled to it. Otherwise it should be treated as a loan in advance, and not taxed until a contractually entitled amount is due and paid.

This then leaves the question of expenses. I think that Vikram should treat this as a business in its infancy, and prepare annual accounts, including a balance sheet. Capital expenditure will include a computer and printer, and perhaps a photocopier, and a motor car may be necessary for the lecturing function. Revenue expenditure will include:

  • An amount for use of home as business, if the activities are run from there.
  • Motor and travelling expenses.
  • Computer supplies, stationery and postage. Broadband and internet facilities are likely to be necessary.
  • Telephone charges and calls. A proportion of these will be claimable.
  • Accountancy charges.
  • Business insurance, and perhaps professional expenses insurance.
  • Professional subscriptions, if relevant.
  • Bank charges and interest.
  • Any payments for clerical assistance.
  • Depreciation on capital items.

Finally, as the activities of the client should be accepted as a vocation, it should be possible to claim pre-commencement expenses prior to the receipt of the first advance of royalties, provided sufficient records have been kept.

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