We all know that dealing with your tax affairs is a headache at the best of times. Three recurring questions I continually get asked are:
Do I qualify for the artist’s exemption?
Should I form a company or be self-employed?
Have I to register for VAT?
Did you know that your work may qualify for the artist’s exemption up to €50,000 per year? For the years 2011 – 2014 inclusive the ceiling was €40,000. This gives you as a writer an incentive to be more pro-active in dealing with your tax affairs. A book, screen play, film script, play, biography, autobiography, arts critisims, literary translations, and Arts Council Bursaries all qualify for the exemption.
You must trade as a SELF-EMPLOYED INDIVIDUAL for the exemption to apply, and once your work qualifies as ‘original and creative’ with ‘cultural and artistic merit’ you will pass the test, provided you are tax resident in an EU/EAA country.
You complete an Artist’s 2 Form and send to Revenue and with a sample of your work, usually three published books, a copy of your play and signed production contract to show the commercial aspect of your writing. Testimonials of your career as a writer will help strengthen your application.
The exemption cannot be back dated to previous years, so no procrastination!
If you receive advance royalties, you must claim in the tax year the royalties are paid. Journalism in newspapers and magazines, school books, advertising for publicity purposes will NOT qualify.
Any publishing income over the ceiling of €50,000 is taxable at the usual tax rates. Expenses relating to your writing are allowable e.g. agent’s fees, travel for research, legal and accountancy fees. Bear in mind though that PRSI and Universal Social Charge applies to the exempt income. While the income may be exempt, you still must declare it on your annual Income Tax Return.
Self Employed or Company?
Most people don’t understand this concept fully, but help is available. Broadly any income run through your company does NOT qualify for the exemption. Your company is contracted with the publisher instead of yourself. All business expenses then run through the company including paying yourself a salary which would be subject to PAYE.
The net profit in the company after all expenses is taxable at 12.5%. Careful consideration should be given to setting up a company – the question to ask yourself is ‘Do I need to take all the funds out to live on?’ – If so, it may make sense to remain self-employed, and have the first €50,000 exempt each year and pay the tax on the balance. Overall it may depend on the level of your income as a writer. If you wish to set up a pension fund however, there is more scope through a company. Another consideration would also be limited liability as any legal action would be directed at the company and not at you personally.
Historically, writers have traded as self-employed individuals as this is the requirement to qualify for the exemption. Since the ceiling for the exemption has dropped over the years, you should discuss with your tax advisor the advantages of remaining self-employed versus contemplating setting up a company for a new larger publishing deal. Costs are a factor here as it is more expensive to run a company, and there is Company law to abide by as well, which requires filing a set of accounts each year with the Companies Registration Office. Again, this should be done by a practitioner on your behalf and different deadlines may apply for filing than that of an individual.
Registering for VAT
You MUST register if your income in a twelve month period exceeds €37,500. Then you are obliged to charge VAT at 23% if the publisher is Irish based. In my experience the majority of publishers are in the UK or USA and generally in these instances, NO vat applies.
You are entitled to reclaim any Irish VAT on business expenses e.g. professional fees which would reduce the amount of VAT you owe. VAT Returns must be filed bi-monthly with Revenue which entails summarising all transactions for the previous two months and paying the balance of VAT online via ROS (Revenue on line)
My golden nugget of advice is always remember the rule that you are merely a collector of VAT for the EU in Brussels and this is never your money, so put it aside in a separate savings account as soon as you get your payment and then you need not worry about how you will pay it! I find this is usually the biggest problem as it is tempting to use the VAT collected for cash flow. So discipline is required and the bonus would be you get a good night’s sleep!
Income Tax and VAT are completely different animals and while the artist’s exemption can apply to the income tax side as already outlined, you have the same VAT obligations as any other business. SO keeping your VAT up to date is a MUST, as Revenue are not very accommodating when it comes to late VAT returns and payments. It is vital to have a tax advisor on board to talk you through how it works, and once it is set up online you may be able to file the VAT returns yourself.
Another instance where a tax advisor becomes invaluable is if your artist’s exemption application is unsuccessful, or if you travel abroad outside of the EU/EEA, you will be guided through the residence rules and criteria. Every individual’s tax circumstances are different and as you know residence is a whole other world, so tailor made tax advice is essential.
(c) Frances Brennan