Friday, 11 May 2012

Tax doesn't have to be taxing? Maybe it does if you self publish internationally

Tax doesn't have to be taxing. Or does it?
One thing virtually all non-US self publishers have to say about Amazon is it's not simple for tax.
In the US, Amazon just take 30% at source, and that value is then applied against your tax bill. Unless you earn mega money this should be plentiful.

Outside the US, it gets more complicated.
I'm going to take my own book as today's example, and extrapolate based on possible future sales (i.e. I'm going to show what my tax would look like at differing levels, and how to make sure I don't pay too much).

UK Tax, and how it should work.
My book is £1.99.
Amazon knock off 6p on UK sales for VAT (which is based on the location of Amazon's HQ, thus the 3% rate).
That gives £1.93 minus 4p delivery = £1.89. That's the gross that Amazon split with us as the authors.
As we're over the £1.49 threshold, we get 70%.

That's £1.32 per copy sold. This year's personal tax allowance in the UK is £8,105 so the first 6140 copies are free of income tax.

Of course there's still National Insurance. Writers pay class 2 and class 4.
Class two is £2.65 a week, so £137.80. Class four is zilch until £7605.
That means unless an indie sells more than 5761 copies at £1.99, their complete tax bill (ignoring outside income) would be just the class two NI, or £137.80

So, UK tax isn't too bad. Above this we pay tax as normal on income, plus NI (9% from the exempt income up to £42,475 and 2% above that). Not nice, especially if you've got another 9% coming off for student loans, but easy enough to work out. If you're looking to offset expenses - go see an accountant.

International Taxation Issues
So, now we've covered the relatively simple system in the UK, let's pretend the same UK seller sells that book in the US instead.
In the US, Dead on Demand is $2.99. This is the minimum for the 70% rate.

No sale tax off this which is nice. 6c goes to delivery. Amazon and the authors split the $2.93.
That means, per US sale we get $2.05, a pretty healthy royalty per unit.

The kicker is, the US government withhold 30% - despite not being entitled to it.

Amazon take this off at source, so you need to claim it back. If you are at the lower end of the scale on income, this is a real pain as it will take a considerable period of time. If you're liable for the tax anyway, you can simply offset it against your UK liabilities (which means the US get the UK government's tax, but doesn't harm you personally.). Again, your accountant should sort this for you.

To be exempt, we need to supply Amazon a W8-BEN form.
To fill in a BEN, we need a TIN. (I'm loving the acronyms, aren't you?).

A TIN is a 'Tax Identification Number'. If you run through a business rather than a sole trader, you need an EIN instead which is functionally the same.
To get one, we need another form. This is US Government form SS-4. Most of it is self explanatory. At section ten, it asks 'Reason for applying'. Tick the Compliance and other boxes.

Write in under other 'To obtain a reduced rate of withholding imposed by s1441 pursuant to the UK-US income tax treaty.' The treaty basically says we shouldn't be taxed twice for the same income.
This can then go back to the US by mail, or be sent to a consulate (call to check with them first!). You will have to faff about with ID documents.

Got the TIN? Good, back to the W-8BEN. Fill that out with your new shiny TIN. It's nice and simple.
Send that back to Amazon at:
Amazon Digital Services
Attn: Vendor Maintenance
PO Box 80683
Seattle, WA 98108-0683

*Phew*. Amazon now stop withholding 30%. That takes our tax position back to the UK as above - Luxemborg VAT which disappears at source. Gross split between Amazon and author. Author pays tax as if self employed which means the usual allowances on income tax, and Class 2 and 4 National Insurance within the boundaries set by HMRC (which change from year to year of course).

There's one more piece of the tax puzzle for UK self publishers, and one you'll actually like.

It's called Averaging. You can read the full details on HMRC's website, but basically they'll average your income over two years for tax purposes. So if in year 1 as a self pubber I make 15k, pay a little tax but don't use all my allowances but in year 2 I do as I earn 60k, I can average to make use of the slack. I thus get taxed as if I had earned 37,500 both years (half of the total, 60k+15k),. This is less than I would otherwise pay.

It's especially useful if you move up a tax band between years - 20 to 40 or 40-50 (or 20-50 if you hit it lucky!) as you can offset the extra tax against the previous year's allowance.

So, there's a quick round up. Please remember, this isn't legal or financial advice. It's only the opinion of a blogger, so always be sure to get proper professional opinions as required. Blogs are no substitute for a lawyer or an accountant!


  1. Thanks for the interesting article.

    I'm a Canadian author and I was able to get a EIN over the phone (took about 20 minutes). I sent my W8-BEN with my EIN to Amazon by regular mail and got back their acceptance in an e-mail.

    Ethan Jones

  2. Hi Ethan,
    Thanks for that - Amazon gives (267) 941-1099 as the number to ring.

    I am aware UK authors have been told to get a letter from the US company paying them (i.e. Amazon, Smashwords etc)which makes it a little impractical for UK users (for the UK US tax treaty proof of nationality has to be provided, which can't be done over the phone. I recommend the US consulate for sending docs as it's domestic rather than shipping to the US).

    Definitely useful for the indies in Canada (and you get free ISBNs too, you lucky devils).