I would like advice on the following:
- My friend started trading (writing and selling books - ebooks and paperback) on Amazon.com through various self-publishing websites. US customers (mostly, though some UK and EU customers on Amazon.co.uk 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!