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Tuesday, 9 September 2014

Scottish Referendum -Tax Implications for Writers


As I write this post we are only 9 days away from the vote which will decide whether Scotland becomes an independent country, or whether it stays within the United Kingdom with a higher degree of Home Rule. And no, I don’t intend to tell you which way I will vote, as both sides have ardent members who are quite capable of forming a lynch mob!

There have been many discussions on the pros and cons of either vote, but there has been nothing that I can see on the outcome of the tax situation for independent writers who publish their books through the Amazon KDP, or Createspace services, or Smashwords, or any other publisher/distributor.

The simple answer is, of course, that in the event of a ‘No’ vote, things will stay as they are, and that in the event of a ‘Yes’ vote we will pay our taxes to an independent Scotland. Simples.

However, ebooks and paperbacks sell worldwide, therefore we are liable for tax in other countries, mainly the US. At present, if writers pay tax in the UK they can apply for exemption of US tax, which is set at 30%, by filling in the relevant forms to apply for an ITIN (Individual Taxpayer Identification Number), which is similar to the British National Insurance Number, or an EIN (Employer Identification Number) if you are registered as a small business. Once these tax numbers are allocated the US withholds any tax due on sales so UK writers’ earnings are not subject to US tax.

It would be foolish to think that this situation would continue if Scotland were no longer part of the UK, because in order to acquire a US tax number, the person applying has to be paying tax in a country with which the US has a tax treaty. Now, the current tax treaty is with the UK, therefore where would that leave an independent Scotland?

If Scotland becomes an independent country it would no longer be part of the UK, and would therefore have no tax treaty with US. No doubt a tax treaty could be set up, provided both parties were willing! But how long would that take? The wheels of political change can turn exceedingly slowly, and I am sure there will be more pressing issues that have to take priority.

Another issue that has been plaguing my mind, is the situation where the UK tax authorities will remove tax from source on all UK sales, which means paying tax to the UK and to Scotland, and don’t think that’s not a possibility. A friend of mine who sells in Europe (Germany, Spain etc) goes through agonies trying to sort out tax issues that arise. I don’t know the details but I think she pays tax in the country where sales are made and then has to claim it back from UK tax – I may be wrong in the detail, but I do know it is always an agonising time for her.

My head hurts with all this thinking about tax implications, so I’m going to leave you now, and if you have any insights on how it is all going to work, maybe you could leave a note in the comments.

Chris Longmuir









12 comments:

Bill Kirton said...

I wish I could, Chris, but I'm as baffled by it all as you are. You're right to flag it up, though. It's bad enough having to jump through the hoops of the present system without multiplying them.

Lydia Bennet said...

Good points and they've made me think of another - money earned via Amazon.co.uk will be foreign income, but apart from that issue, what OF amazon UK? it won't include Scotland any longer. Will there be a separate amazon for Scotland?

Chris Longmuir said...

Heck, Lydia, I hadn't thought of that one. More grist for my headache!

Catherine Czerkawska said...

Nobody knows the answers to any of these questions. Not even the politicians. The prevailing attitude seems to be 'let's act now and think about the details later.' I wouldn't even buy a used car on those terms.

Enid Richemont said...

Or from any of those people.

Enid Richemont said...
This comment has been removed by the author.
kathpathak said...

I too am a KDP author and this question came up during a discussion with my (Scottish) parents (I live in England but was born in Scotland) about the issue of independence. So, I looked closely at the small print of the KDP tax information. It looked to me as if Scotland would revert to the status of EU member rather than UK. Although, this is another arrangement which would have to await ratification after a yes vote. The UK tax agreement is at a more preferential rate than the EU one. However, my dad would be most upset if I didn't point out that Scotland could most certainly reach a new agreement with the US in future. They would be sympathetic to an independent Scotland on principle, I am sure. But there would be uncertainty.

Chris Longmuir said...

My understanding is that we would have to apply to be an EU member, it's the limbo period when everything is getting sorted out that worries me!

Lydia Bennet said...

From what I've read there is no automatic membership of the EU, the joining process takes a long time and every single member of the EU has to agree. it's by no means a done deal. Scotland can't leave the UK and stay in the EU: the EU rules only cover joining by application as an independent country. of course they can apply: and of course they can make a tax treaty with the US, I've no idea how easy that would be.

Catherine Czerkawska said...

There would be no automatic membership. It's a long and difficult process and certain members would be almost certain to vote against it. The EU has already stated in no uncertain terms that they would be very reluctant to allow Scotland to join as an independent nation - because that would open the floodgates to demands from other small nations that want to secede such as the Basque Country and Catalunya. I should imagine that a tax treaty would take a very long time to negotiate. But I do find it worrying that people seem to be assuming that the rest of the UK and the rest of the EU will be accommodating to Scotland, post independence. I think in the event of a Yes vote, we would be in for a very rocky road.

Janet O'Kane said...

Another impact on writers could be that if/when Scotland is allowed back into the EU, it won't enjoy the hard bargained-for concessions won by the UK, like being able to charge zero VAT on books.

Chris Longmuir said...

Hadn't thought of that. There's 3% tax on ebooks and no VAT on paperbacks. This is not doing my initial headache much good!