In the UK, can authors split a single advance on a book over multiple tax returns?

Question

I live in the UK and earn part of my income through freelance creative work. So far, this freelance work has been short, one-off contracts. So I just file a tax return on my year's earnings and pay the tax as required.

This year is different, because I have been commissioned to write a book. I have a received a modest advance on my work and I stand to earn more if the book sells well. Of course beyond the advance I have no way of knowing how much my book is going to earn me.

A friend told me that there are special tax rules that allow authors to split the income from something like a book over multiple years. The logic goes that full-time authors (which I am not) may make a large sum in a year where they publish a book, but may not publish again for several years. So by spreading their "income", they can pay tax at a more consistent and sensible rate.

I have been unable to find any mention of this in the HMRC help online. Is it correct? If so, how does it work?

Answer 1

HMRC calls it: Averaging for creators of literary or artistic works, and it is the averaging of your profits for 2 successive years.

It's helpful in situations like you describe, where income can fluctuate wildly from year to year, the linked article has the full detail, but some of the requirements are:

You can use averaging if:

• you’re self-employed or in a partnership, and the business started before 6 April 2014 and didn’t end in the 2015 to 2016 tax year

• your profits are wholly or mainly from literary, dramatic, musical or artistic works or from designs

• you or your business partner (if you’re in a partnership) created the works personally.

Additionally:

Check that your profit for the poorer year, minus any adjusted amounts, is less than 75% of the figure for your better year. If it is, you can use averaging.

Then, check if the difference between your profits for the 2 years is more than 30% of your profit for the better year. If it is, work out the average by adding together the profits for the 2 years, and divide the total by 2.