Tax for UK Authors: What You Need to Know
Earning money from self-publishing in the UK? You've got tax obligations. But here's the good news: the UK tax system is actually quite favourable for authors. Print books are zero-rated for VAT, the first £1,000 of trading income is tax-free, and you can deduct a wide range of business expenses from editing fees to home office costs.
The bad news? HMRC doesn't make it simple. Between Self Assessment, National Insurance contributions, VAT thresholds, Making Tax Digital, and payments on account, there's a lot to get through. This guide breaks it all down in plain English — no accountancy jargon, no fluff.
This guide provides general information about UK tax for authors as of the 2025/26 tax year. It is not a substitute for professional tax advice. Tax rules change regularly, and individual circumstances vary. If your situation is complex — for example, if you have other self-employment income, are VAT-registered, or earn significant royalties from overseas — consult a qualified accountant or tax adviser. The HMRC website is the definitive source for current rules.
This guide covers the 2025/26 tax year (6 April 2025 to 5 April 2026). Here's what we'll walk through:
- The £1,000 trading income allowance — and when you don't need to register at all
- Step-by-step HMRC Self Assessment registration
- Income tax bands and rates for 2025/26
- National Insurance — Class 2 and Class 4 contributions
- VAT deep dive — zero-rated print books vs 20% on ebooks
- Every expense you can claim as a self-published author
- Record keeping requirements (5-year minimum)
- Making Tax Digital (MTD) — what's coming and when
- Payment dates and deadlines you can't miss
Ash's take: "Most authors I talk to are either ignoring tax entirely (risky) or terrified of it (unnecessary). The reality is somewhere in the middle — it's manageable if you understand the basics and keep decent records. This guide is what I wish existed when I started."
The £1,000 Trading Income Allowance
Let's start with the simplest scenario. If your total self-employment income (not just books — all trading income combined) is under £1,000 per tax year, you're covered by the trading income allowance and you:
- Don't need to register for Self Assessment
- Don't need to file a tax return
- Don't pay any tax on this income
This is a complete exemption. HMRC doesn't need to hear from you at all.
When your income exceeds £1,000
Once your trading income exceeds £1,000, you have two options for how to use the allowance:
| Option | How It Works | Best For |
|---|---|---|
| Deduct the £1,000 allowance | Subtract £1,000 from your gross income instead of actual expenses. Taxable profit = income − £1,000. | Authors with low expenses (under £1,000) |
| Claim actual expenses | Deduct all legitimate business expenses. Taxable profit = income − actual expenses. | Authors with significant expenses (editing, design, marketing) |
If your expenses are over £1,000 (which they usually are for authors who've invested in professional editing, cover design, and ISBNs), claim actual expenses. If your expenses are under £1,000, use the trading allowance for simplicity. You cannot use both.
Important: £1,000 is gross income, not profit
The £1,000 threshold is based on your total trading income before any expenses. So if you earned £1,200 from book sales but spent £800 on editing, your gross income is still £1,200 — above the threshold, requiring Self Assessment registration. Your profit of £400 is what you'd ultimately be taxed on.
- Under £1,000 total trading income? No registration, no return, no tax
- Over £1,000? You must register for Self Assessment
- Choose between the £1,000 flat allowance or actual expenses — whichever saves more
- Most authors with professional production costs should claim actual expenses
HMRC Self Assessment: Step-by-Step Registration
If your book income exceeds £1,000, you need to register for Self Assessment. It's not as painful as it sounds — here's exactly how to do it.
Step 1: Gather your information
Before you start, you'll need:
- Your National Insurance number (on your payslip, P60, or letters from HMRC/DWP)
- Your personal details (name, date of birth, address)
- Your contact details (email address and phone number)
- The date you started self-employment (when you first received book income)
- Your business description (e.g., "author" or "self-published author")
Step 2: Register online
Go to gov.uk/register-for-self-assessment and select "You're self-employed" (not "You're not self-employed but need to send a return").
If you don't already have a Government Gateway account, you'll need to create one. This involves verifying your identity — keep your National Insurance number, a valid UK passport or driving licence, and your P60 or recent payslip to hand.
Step 3: Complete the registration
HMRC will ask for:
- Business name: Your name (or a trading name if you use one, e.g., "Your Name Publishing")
- Business start date: The date you first received income or started trading with the intention of making money
- Business type: Select sole trader (unless you've set up a limited company)
- Business description: "Author" or "Writer and publisher"
- Business address: Typically your home address
Step 4: Receive your UTR
After registration, HMRC will send you a Unique Taxpayer Reference (UTR) — a 10-digit number — by post. This typically arrives within 10 working days (sometimes longer). You'll need this UTR to file your tax return and for some publishing platforms.
Step 5: Set up your online account
Once you have your UTR, you can enrol for Self Assessment online through your Government Gateway account. HMRC will send an activation code by post (another 7–10 days). Once activated, you can file returns, view your tax position, and make payments online.
You must register for Self Assessment by 5 October following the end of the tax year in which you started earning. For example, if you started selling books in July 2025 (tax year 2025/26), you must register by 5 October 2026. Late registration can result in penalties.
Registration timeline summary
| Step | Timeframe |
|---|---|
| Online registration | 15–30 minutes |
| UTR arrival (by post) | 10 working days |
| Activation code (by post) | 7–10 working days |
| Total from start to fully active | 3–5 weeks |
Don't wait until you need to file. Register as soon as you know your income will exceed £1,000. The postal delays for UTR and activation codes mean you could be waiting a month — and if you're close to the 31 January filing deadline, that's cutting it fine.
- Register at gov.uk/register-for-self-assessment as a sole trader
- You'll need your National Insurance number and ID documents
- Allow 3–5 weeks for full setup (UTR + activation code by post)
- Deadline: register by 5 October after the tax year you started earning
Calculate Your Author Tax
Use this calculator to estimate your income tax, National Insurance, and take-home pay as a self-employed UK author. Adjust the inputs to match your situation.
Income Tax Bands for 2025/26
Your book income is taxed as self-employment income, which falls under income tax. Here are the current rates for the 2025/26 tax year (6 April 2025 to 5 April 2026):
| Band | Taxable Income | Tax Rate |
|---|---|---|
| Personal Allowance | £0 – £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
How it works for authors
Your taxable profit from self-publishing (income minus allowable expenses) is added to any other income you have (employment salary, pensions, etc.) to determine your total income and which tax band(s) apply.
Example: Author with a day job
Let's say you earn £35,000 from your day job and £8,000 net profit from book sales:
- Total income: £43,000
- Personal allowance: £12,570 at 0% = £0 tax
- Basic rate: £30,430 (£43,000 − £12,570) at 20% = £6,086 tax
- Your employer already deducts tax on your £35,000 salary via PAYE
- The additional £8,000 book profit is taxed at 20% = £1,600 additional tax
Example: Full-time author
If your only income is £25,000 from book sales with £5,000 in expenses:
- Taxable profit: £20,000
- Personal allowance: £12,570 at 0% = £0 tax
- Basic rate: £7,430 (£20,000 − £12,570) at 20% = £1,486 tax
The personal allowance trap
Your personal allowance of £12,570 is reduced by £1 for every £2 earned over £100,000. This means it completely disappears at £125,140 — creating an effective 60% marginal tax rate in the £100,000–£125,140 band. This is unlikely to affect most authors, but if you're a bestseller with a day job, be aware of this cliff edge.
If you live in Scotland, you pay Scottish income tax rates, which differ from the rest of the UK. Scotland has a starter rate (19%), basic rate (20%), intermediate rate (21%), higher rate (42%), advanced rate (45%), and top rate (48%). Check the Scottish income tax page for current rates.
- First £12,570 of total income is tax-free (personal allowance)
- Most authors' book profits are taxed at 20% (basic rate)
- Book income stacks on top of employment income for tax band purposes
- Scottish authors: your rates are different — check the Scottish bands
National Insurance Contributions
On top of income tax, you'll also pay National Insurance. Yes, it's another thing to think about. But it does contribute to your State Pension entitlement, so it's not all bad.
Class 2 National Insurance
| Detail | 2025/26 |
|---|---|
| Rate | £3.45 per week |
| Annual cost | £179.40 |
| Payable when profits exceed | £12,570 (aligned with personal allowance) |
| Paid via | Self Assessment tax return |
Class 2 NI is a flat-rate contribution. Even though it's expressed as a weekly rate, you don't pay weekly — it's calculated annually and included in your Self Assessment bill.
If your profits are below £12,570, you can voluntarily pay Class 2 NI (£179.40/year) to build up State Pension qualifying years. This is one of the cheapest ways to ensure you qualify for the full State Pension. Worth considering if you're a part-time author with low profits.
Class 4 National Insurance
| Profits Band | Rate |
|---|---|
| Below £12,570 | 0% |
| £12,570 – £50,270 | 6% |
| Over £50,270 | 2% |
Example calculation
An author with £30,000 taxable profit would pay:
- Class 2: £179.40 (52 weeks × £3.45)
- Class 4: £30,000 − £12,570 = £17,430 × 6% = £1,045.80
- Total NI: £179.40 + £1,045.80 = £1,225.20
National Insurance is calculated automatically as part of your Self Assessment tax return and included in your overall tax bill.
NI if you also have a job
If you're employed and self-employed, you pay Class 1 NI through your employer on your salary, and Class 2 and Class 4 on your self-employment profits. However, there are annual maximum limits to prevent you paying excessive NI. HMRC calculates this automatically.
- Class 2 NI: £3.45/week (£179.40/year) — payable if profits exceed £12,570
- Class 4 NI: 6% on profits £12,570–£50,270, then 2% above
- Both are calculated through Self Assessment — no separate payments needed
- Consider voluntary Class 2 if profits are low — it protects your State Pension
VAT on Books: The Complete Picture
VAT (Value Added Tax) is one of the most important — and most misunderstood — tax considerations for UK authors. The rules are actually favourable for print authors, but there are traps for ebook and audiobook sellers.
VAT rates by format
| Format | VAT Rate | Notes |
|---|---|---|
| Printed books (paperback, hardcover) | 0% (zero-rated) | Long-standing UK exemption. No VAT charged on the sale price. |
| Ebooks | 20% (standard rate) | Digital products are subject to standard VAT. |
| Audiobooks | 20% (standard rate) | Treated as digital products, not books. |
| Journals & periodicals (print) | 0% (zero-rated) | Same zero-rating as books. |
| Maps, charts, atlases (print) | 0% (zero-rated) | Covered by the same relief. |
The 0% VAT rate on print books means your readers pay exactly the price you set — no hidden VAT added on top. For ebooks, the 20% VAT is typically handled by the platform (Amazon, Apple, etc.) rather than the author directly. But it does affect the effective price to readers — a £4.99 ebook includes 83p of VAT that you don't receive.
The VAT registration threshold
You must register for VAT if your VAT-taxable turnover exceeds £90,000 in any rolling 12-month period. For most self-published authors, this threshold is comfortably distant — very few indie authors turn over £90,000 a year.
Key points about the threshold:
- Zero-rated sales count toward the threshold — even though print books are at 0% VAT, the revenue still counts as taxable turnover for registration purposes
- The threshold is based on your total taxable turnover, not just book income
- You must register within 30 days of the end of the month in which you exceeded the threshold
- You must also register if you expect to exceed £90,000 in the next 30 days alone
Voluntary VAT registration
Even if you're below the £90,000 threshold, you can voluntarily register for VAT. Here's when it might make sense — and when it doesn't:
| Pros of Voluntary Registration | Cons of Voluntary Registration |
|---|---|
| Reclaim VAT on business purchases (editing, design, marketing services) | Must file quarterly VAT returns (extra admin) |
| Appear more established/professional to trade partners | Must charge 20% VAT on ebook/audiobook sales (if selling direct) |
| Reclaim VAT on significant investments (equipment, software) | No VAT to reclaim on print book sales (they're zero-rated, not exempt) |
| Can use the Flat Rate Scheme for simplicity | Potential cashflow impact |
Print books are zero-rated, not exempt. This is actually better. Zero-rated means VAT is charged at 0% but the goods are still within the VAT system — so if you're VAT-registered, you can reclaim input VAT on related expenses. Exempt supplies are outside the VAT system entirely, and you can't reclaim input VAT on them.
VAT on platform sales
In practice, most authors don't handle VAT directly on individual sales:
- Amazon KDP: Amazon handles all VAT collection and remittance on your behalf for UK sales
- Books.by: Books.by handles VAT on UK print sales — since print books are zero-rated, no VAT is added to your prices. For direct-to-reader sales, you don't need to worry about VAT collection.
- Apple Books, Kobo, Google Play: These platforms act as the seller of record and handle VAT
- IngramSpark: Wholesale model — bookshops handle retail VAT
Selling direct and VAT
If you sell ebooks or audiobooks directly through your own website (not through a platform), and you're VAT-registered, you would need to charge 20% VAT to UK customers. This is another reason why most authors below the threshold shouldn't voluntarily register — it either increases your ebook prices or reduces your margin.
- Print books: 0% VAT (zero-rated) — a huge UK advantage
- Ebooks and audiobooks: 20% VAT — usually handled by the platform
- VAT registration required only if turnover exceeds £90,000
- Voluntary registration: usually not worth it for authors under the threshold
- Zero-rated ≠ exempt — zero-rated is actually better if you're VAT-registered
Claiming Expenses: What UK Authors Can Deduct
This is the section that can save you real money. Allowable expenses reduce your taxable profit, which means less income tax and less National Insurance. HMRC's rule is straightforward: an expense must be "wholly and exclusively" for business purposes. Here's everything you can claim.
Production costs
- Professional editing — developmental editing, copy editing, proofreading (CIEP rates: £34–£56/hour)
- Cover design — professional designers, stock images for covers
- Interior formatting/typesetting — layout and design services
- ISBN purchases — Nielsen ISBN Store costs (£89 single, £164 for 10)
- Author copies — books you purchase for promotional use, review copies, or legal deposit
- Printing costs — proof copies, short runs for events
- Illustration/photography — interior illustrations, author photos
Platform and technology costs
- Platform fees — Books.by subscription ($99/year), IngramSpark fees, etc.
- Website hosting — domain names, hosting fees, SSL certificates
- Software subscriptions — Scrivener, Vellum, Atticus, Canva Pro, scheduling tools
- Email marketing — MailerLite, Kit (ConvertKit), Mailchimp subscriptions
- Computer equipment — laptop, monitor (pro-rata if also used personally — typically claim 50–70%)
Marketing and promotion
- Advertising — Amazon Ads, Facebook/Instagram Ads, BookBub featured deals
- Book promotion services — BookBub, Bargain Booksy, Robin Reads
- Business cards and bookmarks — printed marketing materials
- Advance reader copies (ARCs) — NetGalley subscription, printed ARCs
- Book launch costs — venue hire, refreshments (keep these reasonable)
- PR and publicity — publicist fees, press release distribution
Professional services and memberships
- Society of Authors membership — currently £100/year for published authors
- Alliance of Independent Authors (ALLi) membership — from £89/year
- Accountancy fees — the cost of your accountant preparing your tax return is itself deductible
- Legal fees — contract reviews, copyright matters
- Insurance — public liability for events, professional indemnity
Research and development
- Research books — books bought for research purposes
- Course fees — writing courses, self-publishing courses, marketing training
- Conference and event tickets — London Book Fair, literary festivals (where you're attending for business)
- Subscriptions — writing magazines, industry publications (The Bookseller, Publishers Weekly)
Travel expenses
- Travel to events — train fares, mileage to book fairs, festivals, signings (HMRC approved mileage rate: 45p/mile for first 10,000 miles, 25p after)
- Accommodation — hotel costs for overnight business trips (e.g., London Book Fair)
- Meals — subsistence on business trips (reasonable meals, not lavish entertaining)
- Parking and tolls — when travelling for business
Postage and shipping
- Legal deposit postage — sending copies to the British Library and other deposit libraries
- Review copy postage — sending books to reviewers and media
- Reader fulfilment — if you ship books yourself
- Packaging materials — book mailers, envelopes, tape
Home office expenses
If you write and manage your publishing business from home, you can claim a proportion of your household costs. You have two options:
Option 1: HMRC Simplified Expenses (flat rate)
No need to calculate actual costs. Use HMRC's flat rate based on hours worked from home per month:
| Hours Worked From Home Per Month | Flat Rate Per Month |
|---|---|
| 25 – 50 hours | £10 |
| 51 – 100 hours | £18 |
| 101+ hours | £26 |
For a full-time author working 101+ hours/month from home, that's £312 per year. Simple, but often lower than actual costs.
Option 2: Actual costs (proportional)
Calculate the proportion of your home used for business, then claim that proportion of:
- Rent or mortgage interest (not capital repayments)
- Council tax
- Electricity, gas, water
- Broadband and phone (business proportion)
- Home insurance
- Cleaning (of the office space)
The proportion is typically calculated by floor area (e.g., if your office is one of five rooms, claim 20%) or by time (e.g., the room is used 50% for business). For example: £12,000 annual household costs × 20% (one room of five) = £2,400 claimable.
For most home-based authors, actual costs provide a significantly higher deduction than simplified expenses. The simplified method gives you £312/year at most, while actual costs can easily reach £2,000–£3,000. The trade-off is that you need to keep records of all household bills and calculate the business proportion. If your publishing income is substantial, actual costs are almost always better.
What you CANNOT claim
- Personal expenses — meals at home, personal clothing, personal travel
- Fines and penalties — HMRC late payment penalties, parking fines
- Client entertaining — taking a reviewer to dinner (HMRC specifically disallows entertainment)
- Capital items over £1,000 — claimed via capital allowances instead (e.g., a £1,500 laptop is claimed over time, not in one year, unless using the Annual Investment Allowance)
- Mixed-use items at full cost — a phone used 50% personally can only be claimed at 50%
- Claim everything that's "wholly and exclusively" for your publishing business
- Key deductions: editing, cover design, ISBNs, platform fees, marketing, home office
- Actual home office costs (£2,000+) usually beat simplified expenses (max £312)
- Professional memberships (Society of Authors, ALLi) are fully deductible
- Keep every receipt — you need proof for at least 5 years
Record Keeping Requirements
HMRC requires you to keep accurate business records. Getting this right protects you in case of an investigation and makes filing your tax return dramatically easier.
What records to keep
- Income records: royalty statements from all platforms (Books.by, Amazon KDP, IngramSpark, Apple Books, etc.), bank statements showing deposits, invoices for direct sales
- Expense receipts: every business expense — editing invoices, design invoices, ISBN purchase confirmation, subscription receipts, advertising spend reports
- Bank statements: for any accounts used for business (a separate business bank account is highly recommended)
- Mileage log: if you claim travel expenses — date, destination, purpose, miles driven
- Home office calculation: your methodology for calculating the business proportion of home costs, plus copies of household bills
How long to keep records
You must keep all records for at least 5 years after the 31 January submission deadline of the relevant tax year.
| Tax Year | Return Due | Keep Records Until |
|---|---|---|
| 2024/25 | 31 January 2026 | 31 January 2031 |
| 2025/26 | 31 January 2027 | 31 January 2032 |
| 2026/27 | 31 January 2028 | 31 January 2033 |
Digital vs paper records
HMRC accepts both digital and paper records. In practice, digital is far more practical:
- Photograph receipts using your phone — apps like Dext (formerly Receipt Bank), FreeAgent, or even just a dedicated Google Drive folder
- Download royalty reports monthly from all platforms and save them
- Use accounting software — FreeAgent, Xero, or QuickBooks Self-Employed make record keeping almost automatic
- Spreadsheet at minimum — if you don't want software, a simple spreadsheet tracking income and expenses by date, amount, category, and description is sufficient
While not legally required for sole traders, opening a separate bank account for your publishing business makes record keeping dramatically easier. Many banks offer free business accounts for sole traders (Starling, Monzo Business, Mettle). When all your book income goes into one account and all business expenses come out of it, reconciliation at year-end takes minutes instead of hours.
- Keep all records for at least 5 years after the filing deadline
- Digital records are fine — photograph receipts, download royalty reports monthly
- A separate bank account makes everything 10× easier
- Consider accounting software (FreeAgent, Xero) — especially with MTD coming
Making Tax Digital (MTD)
Making Tax Digital is HMRC's long-running initiative to digitise the UK tax system. It's already mandatory for VAT-registered businesses, and it's coming for Self Assessment next.
MTD for Income Tax Self Assessment (MTD for ITSA)
| Phase | Who's Affected | Start Date |
|---|---|---|
| Phase 1 | Self-employed with income over £50,000 | April 2026 |
| Phase 2 | Self-employed with income over £30,000 | April 2027 |
| Phase 3 | Self-employed with income over £20,000 | TBC (likely 2028+) |
What MTD requires
- Compatible software: You must use HMRC-recognised accounting software (not spreadsheets) to maintain digital records
- Quarterly updates: Instead of one annual return, you submit quarterly summaries of income and expenses to HMRC
- End of Period Statement (EOPS): A final annual reconciliation after the tax year ends
- Final declaration: Confirming your tax position (replacing the traditional Self Assessment return)
Compatible software options
- FreeAgent — popular with UK sole traders, from £14.50/month. Specifically designed for UK self-employment.
- Xero — from £15/month. Strong UK presence with MTD compatibility.
- QuickBooks Self-Employed — from £6/month. Good budget option.
- Sage — from £12/month. Long-established UK accounting software.
- HMRC's free software — HMRC will provide basic free software for simple cases.
What this means for authors
If your author income (from all self-employment combined) exceeds the relevant threshold, you'll need to:
- Sign up for MTD-compatible accounting software
- Record all income and expenses digitally (not in spreadsheets)
- Submit quarterly summaries to HMRC
- File a final declaration at year-end
For most part-time authors earning modest income from books, MTD won't apply immediately. But if you're building a successful publishing business, or your total self-employment income is growing, now is a good time to switch to proper accounting software. Getting comfortable with digital record-keeping before it's mandatory makes the transition painless.
- MTD for Self Assessment starts April 2026 for income over £50,000
- Requires accounting software, quarterly submissions, and digital records
- Start using accounting software now — even if MTD doesn't apply to you yet
- FreeAgent and QuickBooks Self-Employed are good, affordable options for authors
Payment Dates & Deadlines
Missing HMRC deadlines means penalties and interest. Here are the key dates every UK author needs in their calendar.
Annual deadlines
| Date | What's Due |
|---|---|
| 5 April | End of the tax year |
| 6 April | Start of new tax year |
| 5 October | Deadline to register for Self Assessment (if newly self-employed) |
| 31 October | Paper tax return deadline (if filing by post) |
| 31 January | Online tax return deadline + payment of tax due + first payment on account |
| 31 July | Second payment on account |
Payments on account explained
If your Self Assessment tax bill exceeds £1,000 (after deducting tax paid at source, e.g., PAYE), HMRC requires payments on account — essentially advance payments toward next year's tax bill.
Each payment on account is 50% of the previous year's tax bill. So if you owed £3,000 for 2024/25:
- 31 January 2026: Pay the £3,000 tax due for 2024/25 plus £1,500 first payment on account for 2025/26
- 31 July 2026: Pay £1,500 second payment on account for 2025/26
- 31 January 2027: Pay any remaining balance for 2025/26 (or receive a refund if you overpaid), plus first payment on account for 2026/27
Your first Self Assessment payment can be a shock — you may owe the full year's tax plus the first payment on account (an extra 50%). For example, if you owe £4,000 for the year, your January bill could be £6,000 (£4,000 + £2,000 payment on account). Budget for this from day one. Set aside 25–30% of your book profits each month in a savings account.
Late filing and payment penalties
| Offence | Penalty |
|---|---|
| Tax return 1 day late | £100 automatic penalty |
| Tax return 3 months late | Additional £10/day (up to 90 days = £900) |
| Tax return 6 months late | Additional £300 or 5% of tax due (whichever is higher) |
| Tax return 12 months late | Additional £300 or 5% of tax due (whichever is higher) |
| Late payment | Interest charged from the due date + potential 5% surcharges at 30 days, 6 months, and 12 months late |
You can file your tax return as soon as the tax year ends (from 6 April onwards). Filing early doesn't mean paying early — payment is still due 31 January. But filing early gives you months to plan for the bill, and avoids the £100 automatic penalty for late filing. Even if you can't pay on time, always file on time — the filing penalty is separate from the payment penalty.
Setting up a budget
The simplest approach to avoid tax surprises:
- Open a separate savings account (instant access)
- Every time you receive book income, transfer 25–30% to the savings account
- Use this fund to pay your Self Assessment bill
- Any surplus after paying tax? That's your bonus
- File online by 31 January — pay by 31 January
- Second payment on account due 31 July
- Budget 25–30% of profits for tax from day one
- File early (from 6 April) — you don't have to wait until January
- Late filing = instant £100 penalty. Always file on time, even if you can't pay
Losses & First-Year Relief
Made a loss in your first year? That's completely normal — you've spent money on editing, cover design, ISBNs, and marketing, but sales are just getting started. The good news: HMRC actually lets you use these losses to your advantage.
How trading losses work
If your allowable expenses exceed your trading income, you have a trading loss. You can:
- Carry the loss forward — deduct it from future profits of the same trade (most common approach)
- Set against other income — deduct the loss from other income (e.g., employment salary) in the same tax year
- Set against previous year's income — carry the loss back one year and claim a refund
Example
Year 1: You earn £500 from book sales but spend £3,000 on editing, design, and ISBNs. Your trading loss is £2,500.
Year 2: You earn £5,000 from book sales with £1,000 expenses. Profit before loss relief = £4,000. After applying the £2,500 carried-forward loss, your taxable profit is just £1,500.
Many authors spend £1,500–£3,000 in their first year on production costs with relatively low initial sales. By claiming these as expenses and carrying forward the loss, you effectively get tax relief on your setup costs when your income grows. Make sure you register for Self Assessment and file a return even if you make a loss — otherwise you can't claim the relief.
- Losses can be carried forward to offset future profits
- You can also set losses against other income in the same or previous year
- Register and file even if you make a loss — you need the return to claim relief
- First-year publishing costs (editing, design, ISBNs) create valuable loss relief
