Becoming a sole trader – why and how

So, you know you want to publish your book. Whether you’re going self or traditional, it doesn’t really matter. Publishing means money (you hope), and money means tax. This post is a guide for how to deal with that in the UK.

Disclaimer: I am not in a position to offer any kind of financial or business advice. These are just my learnings from the process I went through. Your circumstances may be different, and processes may change. If I’ve made any mistakes in this, please let me know.

Do I really need to do this?

Yep. Theoretically, if you earn more than £1,000 per year beyond your day job, you need to declare it to HMRC by sending them a self-assessment tax return each year. You also probably want to set up as some kind of business entity for your writing, as a lot of sites you register with will ask for business details and ‘random person’ isn’t an option.

There are two entities you can choose from:

  • Sole trader
  • Limited company

Sole trader is probably the easiest. You keep track of your finances and make sure you report them to HMRC at the right times. That’s it. If you set up a limited company, it’s more involved. You can’t just take out all the money you make (as it belongs to the company, not you) and you’ll need to get an accountant/bookkeeper.

So why would you ever set up a limited company?

  • If there’s a chance you could get into a situation where you make so much of a loss that you go bankrupt. In that case, the company takes the hit, not you, and the debt can’t be collected by taking your house and belongings. I figure this one’s pretty unlikely unless you really mess up (or if you enable returns with delivery in IngramSpark, as that can cost you upwards of $20 per returned title and people have been caught out by that). Then again, if you’re going to be writing something controversial or that involves real people, it might be a good idea in case you hit legal fees.
    • You can get indemnity insurance to cover the possibility of getting sued etc. as a sole trader, but this is hellishly expensive. I checked. It came to about £800 a year. As above, save it for situations where it is a real risk.
  • If you make tens of thousands of pounds a year, because limited companies can be more tax efficient.
  • If you plan to publish other people’s books as well under your own publishing house/imprint.

As for when you should start this process, you’ll want to do it at least a few weeks before you start submitting your payment details to receive income (with time to get a business bank account included). In my case, I knew I would be running the Kickstarter and receiving money from that soon, so I set everything up plenty of weeks in advance. It’s probably best to try to keep your registration and your first income within the same tax year so whatever you report back to HMRC doesn’t look really weird.

Okay, so how do I do it?

  1. Visit the government website. You’ll need your National Insurance number and, preferably, a Government Gateway account (but you should be able to set this up as part of the process if you don’t have one already). The website says you can also use something called Verify instead; Government Gateway worked pretty smoothly for me.
  2. Click on the link to register for self assessment (after reading the information on the page).
  3. Click on another link to register for self assessment.
  4. If you’re just self-publishing on your own, not employed for your writing by another company or publishing in a partnership with someone else, click the link to register as self-employed. (I imagine traditionally published authors use the same link, but your agent will probably know better than I do, so ask them.)
  5. Follow the steps on the next page.
    • Annoyingly, I didn’t take screenshots as I went through the process, so I can’t record all the steps here. Once you get to the right form, though it’s all fairly self-explanatory.
    • At some point you’ll be given a choice about a name. You can either use your own name or make a name for your business. I chose to use Frankly Writes to stay on brand, but I usually register for things with my own name, and I publish under an imprint with my own name otherwise I figured that would look weird. So maybe I should have just registered with my name to begin with.
    • Parts I struggled with:
      • I couldn’t find the right form for ages after logging in, and the website made it look a bit like I’d already registered. Don’t be fooled. Try clicking through the links again once you’ve signed in and you should eventually get to the right place. You’re looking for a form that looks a bit old and out-of-place compared to the rest of the site’s UI.
      • I second-guessed myself on some of the questions. If you’re self-publishing your own book with no one else involved in that side of things, and have no other roles/arrangements, you’re self-employed and a sole trader, not any of the weirder options like being a contractor and stuff like that. They have a quiz to help you with that step but it actually made me more confused.
  6. Make sure to put together a spreadsheet of your finances as soon as possible, including any writing-related expenses from within the past seven years. These count as start-up costs and like all expenses, can be written off against tax. In my case, these included all the editing, design and formatting for my first book, among other things.

After that, you’ll get a tax ID through the post. Don’t lose it. You can actually find it later through the same website you used to register, but it’s best to keep the paper copy safe.

And that’s it! I know I probably haven’t explained all the steps very well, so if you have a specific question, please ask and I’ll do my best to remember (or find) the answer.

Leave a Reply

Your email address will not be published. Required fields are marked *