The section is to explain how you, as an author, can obtain a tax refund. That is, get your tax back. This is not a guide for you to raid the Exchequer or to get anything to which you are not entitled. It is HM Revenue & Customs who owes the money here. And the money is owed to you.
If, like most academic writers, you are holding down a full-time as a professor, reader, lecturer, teacher or tutor, you will have suffered tax under PAYE on your principal employment.
You and I, when we undertake research for our writing, we incur costs. Our expenditure falls short of our writing income. We incur losses. They are tax losses. And our tax losses may be relieved against our other income, our employment income, generating a repayment of tax.
In short,once our writing losses are netting against our annual salary, HMRC will have taken too much tax under the PAYE system. So next we will identify those allowable deductions, which — once claimed — will reduce your tax liability and, in most cases, result in a tax repayment.
Finally, I would add that although this section is about securing tax refunds for authors, the same principles may be applied to minimising an author’s tax liability. Tax repayments generated result from each individual’s personal circumstances. Certainly if you (or your partner) have never paid tax you will not be getting any tax back. But even so, applying the following principles will help lower your present or future tax bills.
You are an academic writer. You write papers, which are to be published in learned journals, sometimes descriptive, sometimes analytical, sometimes persuasive and and sometimes critical, but always original and of the highest standard, often subject to peer review. Without you there would be no scholarship, no expanse in the sum of human knowledge, no foundation on which the next generation can build.
And there is something else. Your writing is a business; you are a self-employed writer. That you may not be making much money is irrelevant. That your expenditure may exceed your income doesn’t matter. Your writing is a very serious endeavour. It is not a hobby. You are writing in anticipation of making money now or in the future. That is, in legal terminology, you are trading with a view to profit.
The tax legislation has specific provisions to assist new or struggling businesses that are trading with a view to profit. It allows losses to be offset against income from other sources. This is discussed in more detail elsewhere in this website. But for now, suffice it to say that when those losses are set off against earned income — say, employment income — a tax repayment is generated.
The key question therefore is what expenses, as an academic writer, are you allowed to deduct for tax purposes?
I am going to tell you in the following sections, but first let me get one thing out of the way. It is obvious, but it nonetheless must be said out loud. In order for you to get a tax refund, you must have paid tax first, in most cases this will be under PAYE.
I do not do magic (whatever my clients may say!). There is no illusion involved here, no sleight of hand. I am not going to create a rabbit you can pull out of the hat in amazement in the form of a tax repayment. The rabbit must first be in the hat. The rabbit is the tax you have already paid. And we’re going to get some of it back.
No doubt there are some academics reading this thinking they already have matters in hand, having claimed their employment related expenses on their tax returns. If you are one, I suggest, with apologies and deference to Stevie Smith, that you are “not waving but drowning”.
There is a fundamental difference between claiming employment related expenses and offsetting self-employment losses against your employment income. To claim employment related expenses monies must have been laid out “wholly, exclusively and necessarily“ in the performance of the employment. However, if your writing is part of your own trade or profession, rather than a dependent and constituent part of your employment, the range of your allowable expenses is more generous, creating a significantly higher tax repayment.
As an academic author your home is your office. Consequently, a proportion of your home expenses may be deducted from your writing income to arrive at your taxable profits or allowable losses. As to how much should be deducted, this is — to some extent — a matter of art.
If you write from a separate study in your home or, say, an outhouse at the bottom of the garden, it would be relatively easy to determine the amount of the expenses on, say a square metre basis.
However, increasingly we write wherever and whenever we can. The use of laptops, tablets even mobile phones makes it easy to write anywhere, either with the devices synched with each other, or with the use of the portable memory stick. (I keep mine on my key ring.) In these instances we may take a broad percentage of the aggregate household expenses based on time spent writing. This would include: gas, electricity, insurance, mortgage interest and repairs etc.
If you have a cleaner, there is no question that her or his costs are incurred in part for the business. I would go further. If the only reason you have a cleaner is so that you can spend your free time writing rather than cleaning, the cleaner’s entire expense is an allowable deduction. In short, you need the house to be clean. It is your writing environment. It is important that the house is always spick and span.
If your academic work is a book it must be edited – and initially by yourself perhaps, or by a friend/colleague or, at best, by a professional. The same applies to proofreading. The cost of this is an allowable deduction.
Obviously you cannot pay yourself and you must pay a professional. But what about a friend? Well, if the cost is to be tax deductible you clearly must pay them. Sometimes this is difficult with a friend because they may refuse payment on the basis of, “I am doing this as a friend, you don’t need to pay me!” But usually you do end up paying them one way or another — you buy them a present, or you take them for a meal in their favourite restaurant – or you do something else. In some way or another you return the favour.
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The gift, the meal or the ‘something else’ will cost you. The cost of the present is tax deductible, the cost of the meal is not (see below). And the cost of the ‘something else’? Well, it depends on what it is. I say if your friend doesn’t want to be paid but you want to return the favour, give them a gift voucher and enter the cost in your records under ‘editing and proofreading expenses.’
This is an important expense and needs to be explained in more detail. Unusually though, let’s start from looking at the position of the recipient. Everyone, from the moment they are born, enjoys a personal allowance. That is the amount of money they can receive in income without falling in charge to income tax. However any sum paid to such a person, though tax free in their hands, is nonetheless a tax allowable deduction for the payer. Now, let me turn the picture round again.
If, say, you paid your daughter (son, niece, nephew whomever) for secretarial, administrative or research services say £500 a month, you would deduct such payments from your self-employed writer’s income for tax purposes (reducing your profit or increasing your loss) but your daughter – provided she had no other taxable income – would suffer no tax at all. The same would apply, say, to your spouse.
How does HMRC view such arrangements? Well, on the whole, in my experience, reasonably well. Such arrangements have been common fare for many years. Clearly the recipients of the payments must have the skills to undertake the work assigned to them. That said, virtually all children in secondary school can do secretarial and administrative tasks and much more.
The accommodation I am referring to in this section is different from the use of home as office expenses I discussed above. Here I am referring to the accommodation expense you incur while being away from home. Obviously, if you rent a cabin in the woods to finish your book (as I did for my first novel) then the entire expense is allowable.
The same would apply to hotel costs incurred while gathering information about a specific geographic location. Your expenditure must be incurred ‘wholly and exclusively’ for your trade. There is no obligation for it to be ‘necessarily’ so incurred. This is the principal distinction between allowable employment expenses and allowable self-employment expenses. Tax legislation — and supporting tax cases — are very clear on this point.
The same principles outlined in ‘Accommodation’ above equally apply to travel expenses. Here I am referring to taxis, buses, trains, trams and planes. I will deal with motor expenses separately. As a general principle of tax law a self-employed trader cannot claim as a deduction the cost of travelling from his home to his workplace. Here you have an advantage. For your self-employed academic writing purpose, your workplace is your home.
So every time you leave your home the travel is potentially a tax allowable deduction. Of course, you should be travelling to a place relating to your profession as a academic author — a colleague you wish to liaise with, a lecture you wish to attend, a documentary film you wish to see, a manuscript you need to drop off — the list is endless.
Ah, the beloved motor car. Under this heading I am looking at the cost of running the car, not the car itself. The cost of actually buying the car is tackled in the Capital Items section below.
There are a lot of costs that fall under motor expenses other than petrol. These include oil, road tax, repairs MOT, insurance, etc. These can be added up separately and the total amount claimed, less a proportion for private use of the vehicle. The proportion would depend on the split between your business use of the vehicle and its personal use. So if the business use versus the personal use is, say, 60:40, only 60% of the total cost would be allowed as a business expense.
An alternative to the approach is the Revenue approved flat rate scheme. Under this scheme you may claim 45p for each mile travelled up to 10,000. Over 10,000 the rate you can claim is 25p per mile. Again, this only applies to business miles, but rather than logging each trip it is acceptable to take the same percentage approach discussed above. It is important to note that if you use the flat rate scheme you cannot separately claim capital allowances for the motor vehicle as a capital item.
Given the restricted value of capital allowances for motor vehicles, and the relative simplicity of the flat rate scheme, I believe that in most cases the flat rate scheme is the best option.
I must not forget motor cyclists. The same principles as above apply, only under the flat rate scheme the cost per mile is 24p with no 10,000 mile adjustment.
Finally, you will have noticed that the cost of parking was not included in the list of allowable expenditure above. It may be claimed separately. It is not part of the flat rate scheme. However, try as one might, you cannot squeeze into this category the cost of parking fines. A parking fine is a penalty. It is a punishment of the government for breaking the law. No government on earth would allow a punishment it has imposed to become a tax deductible expense in the hands of the offender.
Telephone and fax expenses are, of course, allowable tax deductions. Normally a proportion of the calls are claimed (say, 50% business; 50% personal). I have known some tax inspectors insist that the line rental charge is not an allowable expense, as it would have been incurred anyway, and that only the call cost can be apportioned. Precedent is on their side for this approach, but such an attitude is pernickety and not insisted on by most inspectors I have dealt with.
At the absolute extreme it would be within their rights for the inspectors to request a full call print out and insist that you identify each business (as opposed to personal) call. This is very rare. A reasonable apportionment is normally quite sufficient.
One way of ensuring that all your calls are always allowed as a tax allowable expense is simply to have a dedicated business mobile. This is the number you put on your correspondence and business cards. and all calls relating to your business as an academic author, however tangentially, are made on this line.
The tax treatment of the cost of broadband and wi-fi is very similar to that of telephone and fax.
The printing, postage & stationery expense is straightforward and self-explanatory. The only point to remember is that it includes all such costs related to your self-employment as a writer. So, for example, one should include the cost of photocopying research material. One should also include the cost of printed promotional materials, business cards, flyers, bookmarkers, etc.
Christmas cards are an allowable expense when sent to publishers, customers, potential customers, agents, or anyone connected with promoting your book or other publications. How about a Christmas or birthday day card with your book cover on the front? These are reasonably inexpensive to order these days, just send a pdf to Vistaprint.
And don’t be shy in this area: mugs, t-shirts, mouse mats, key-rings. I know you’re in academia but this is an entertainment economy. If you are going to give a small gift anyway, well, badge it and make it tax deductible.
It goes without the saying that the cost of all technical journalists and papers relevant to your areas of expertise are allowable deductions for tax purposes. The cost of newspapers, however, is a difficult area because of their general nature. That said, papers of record, say, the Times, the Financial Times, theWall Street Journal, Le Monde, Der Spiegel, are more likely to be allowable than other mass circulation newspapers.
Increasingly, more people read their news and opinion pieces online. So the associated costs would be a subscription rather than a newspaper purchase. However the same rule applies.
This one I think is fairly straightforward. The cost of academic conferences is tax deductible, together with any related accommodation costs or accessories. It is not unusual for academics to take refresher courses, particularly in areas where change is constant and unforgiving (like my own discipline of tax consultancy or, more specifically, revenue law).
Clearly, if you are an academic in Humanities, there is an argument for these costs to be allowable for tax purposes. Many accountants would argue that such expenses would fail the duality test. That is, such expenses would not be wholly and exclusively for the benefit of your writing profession, rather there would be an element of personal entertainment, ruling out the entire expenditure as a tax deduction. Certainly, HMRC encourages such an approach.
I think such expenditure should not be ruled out on a blanket basis and that each case should be assessed on its merits. I can supply tax cases supporting each position.
If you incur bank interest and charges or credit card interest and charges, these are allowable provided the costs arose as a result of a debt incurred as a result of a business expense. If, say, you bought your computer on credit all related finance charges are allowable. The same applies to leasing costs.
I would mention here that it makes sense (though it is not absolutely necessary) for you to have a separate business bank account and a separate business credit card. This is discussed in more detail in the bookkeeping section elsewhere.
All accountancy, legal and professional fees pertaining to the business are an allowable expense. So, should you appoint me as your accountant or tax advisor, my fees are tax fully tax deductible.
Entertaining is specifically disallowed as an allowable deduction. However, the cost of food provided at an academic gathering, where the food you provide is ancillary to the main event, is allowable.
Subsistence is another tricky one. As buccaneering as I may well be on many claims for deductions, here I shy away. There is certainly some wiggle room, and there have been tax cases on this issue which I will explain and analyse in depth in future blogs.
There are so many forms of advertising today, with the advance of technology and social media. Traditional adverting is, of course, allowable. So is the expense associated with the ever-expanding social media: websites, Facebook, Twitter, Instagram and others.
Clothing is an area where many self-employed traders cross the line and get into trouble. In broad terms, clothing is not an allowable expense. In a leading case Ann Mallalieu an accomplished barrister failed in her attempt to get the dark clothes she wore under her court robes as an allowable expense, the judge opining that although her “subjective intention was to buy clothes for work, clothes were needed as a human being for warmth and decency.”
There are exceptions (in tax law there are always exceptions). Uniforms are allowed and theatrical costumes; protective clothing – like a contractor’s hard hat and boots – are allowable too. But these are unlikely to apply to academics. That said, a headmaster robe (bringing back memories) is certainly allowable.
There are items you will buy that cannot be claimed as a business expense in your income and expenditure account because their useful life is over one year. Such items are referred to as capital (not to be confused with the ‘capital introduced’ into your business accounts which is a separate matter discussed elsewhere on this website. This is an area which, I’ve found, induces tedium in readers. So let me be stark and direct. Computers are capital items, so are desks, photocopiers, fax machines and other office furniture, largely tangible things you can slap your hand on.
For these items you can claim capital allowances. Their costs is supposed spread over the life of the asset (known as a writing down allowances, currently at an annual rate of 18%). Bad news, right? No, because there are exceptions (tax law again!). If the amount of capital items you buy in the year (after 1 January 2022 to 31 March 2023) are in aggregate under £1,000,000, the whole expenditure attracts a capital allowance rate of 100%. That is, you can write off the entire cost in the year of purchase. Anything over that sum will qualify for writing down allowances in the normal way.
A motor car is a capital item, but the above rules do not apply. They are entitled to a writing down allowance of either 6% or 18% depending on their CO2 emissions.
So, to be clear the amount of your taxable profits or tax losses is your income less allowable expenses, less capital allowances.
Finally, the cost of repairing a capital asset is a simple allowable deduction. There is no need to claim capital allowances separately.