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Amazon Royalties - Tax

Calculating Tax for Self-Publishing

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I would like advice on the following:

- My friend started trading (writing and selling books - ebooks and paperback) on through various self-publishing websites. US customers (mostly, though some UK and EU customers on etc) are purchasing his books off of Amazon. Therefore, my friend is earning royalties for every sale ~ $2.70. 

- My friend started trading in June 2019. He has sinced accumulated over $75,000 in royalties (Amazon fiercely promoted his book on their website because they figured it would also make them a lot of money too)!

- As of October 2019, he is still earning royalties. He may also earn further royalties over the Christmas period too.

- He has registered with the HMRC for self assessment. He has a UTR number.


Given this information, I have the following questions:

- As my friend receives income from several 'indie' self-publishing websites that put his books on Amazon for him (automatically), how would this affect his self assessment tax return? Should he simply total up all the royalties earned across these websites and deduct any allowable expenses? Note: my friend works only for himself. He does not employ anyone, officially. He does sometimes hire people from Upwork to do minor tasks. Does this count as 'outgoings' which should be deducted from his profit on tax return, which comes all from royalties?

- My friend is very likely to exceed the UK VAT threshold of £85,000 at the end of the current tax year (April 2020). It is impossible to predict how many royalties will have been earned, but a likely estimate is over £100,000 (as a minimum, given current rate of sales). Therefore, does he need to register and pay VAT to HMRC even if most of his sales come from the US? I believe Amazon also pays VAT on his behalf, per sale. Any VAT would apply only to his ebooks, as I believe paperback books are VAT exempt. Is this correct?

- I believe my friend is allowed to claim allowable expenses. He is currently a student living in private rented accommodation. He stated on his self assessment registration that his business address is also his home address, which is the student apartment he is currently occupying. Therefore, what allowable expenses would he be entitled to claim?

- As he has earned a substantial amount of money, would HMRC likely open an enquiry when he submits his tax return? (Maybe it is higher than the industry average, and might 'flag up' something unusual on their systems? What can my friend do to prepare for this? In terms od documentation and so on?

- Should my friend set up a limited company to take advantage of the 19% corporation tax? How would this work?

Thank you very much!

Replies (7)

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By Tim Vane
07th Oct 2019 19:21

Your "friend" needs an accountant. Luckily, with the income he is making, affording one will not be a problem.

What your "friend" does not need is half-baked tax advice from an internet forum. I suspect that all the good advice on here will be the same: "speak to an accountant".

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By SXGuy
07th Oct 2019 19:30

I believe your friend needs an accountant.

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By JoF
07th Oct 2019 19:44

Why has your 'friend' involved you in this?

I believe you/your 'friend' is missing out on other royalties.

I would suggest you/your 'friend' needs to find a good accountant.

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By Accountant A
07th Oct 2019 20:49

Suzi23 wrote:

I would like advice on the following:

I would like a gold plated Ferrari for nothing but it's not going to happen. What makes your friend's work so valuable and the work of accountants worthless?

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Hallerud at Easter
07th Oct 2019 21:09

From memory authors had some interesting facets to their tax not normally available, I think averaging was one there may be others.

Given this area is somewhat niche I really think your friend needs an accountant versed in the nuances of the industry, whilst large advances seem in the main to be fewer these days you still have film and other performing medium issues.

This is an area where DIY may be very expensive.

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By lionofludesch
08th Oct 2019 08:54

It's just not a sensible question, I'm afraid.

Far too complex for an internet forum.

But thanks for asking and showing your confidence in us, however misplaced that may be.

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By Tax Dragon
08th Oct 2019 08:56

If you can afford to insure your car then you insure your car, because the cost of doing so is known and limited while the costs of not doing so are unknown and unlimited.

If you can afford to pay a mechanic to fix the car, they'll probably do a better job than you would (no offence) with your Dad's spanner and the car menders' manual.

If you can afford an accountant, what will that cost? Not much. Your friend sounds like he could even afford a good accountant, who will definitely do a better job than you would (no offence) with a Google spanner and some general pointers from a chatroom. I mean forum.

I just don't understand your thinking in asking your question.

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