last updated: 3 November 2019 (approximate reading time: 6 minutes; 1066 words)
This post is for UK domiciled authors who are taxed as self-employed individuals, in relation to their US earnings (from US publishers/self-publishing platforms). However, the principles may have wider application for anyone with overseas earnings.
And just to be clear, this note does not constitute advice—I am simply setting out my understanding of how the UK and US tax systems interact. If you want further advice, then you need to seek out a tax adviser to consider your specific situation.
The default position in relation to US earnings for (self-employed) UK citizens is that these earning are taxed at source. In other words, these earnings are taxed in the US at US tax rates.
UK authors with a US publisher will find that their US publisher deducts tax and then pays the net amount to the author. This will apply to advances and royalties. This practice is also applied to self-published books where the self-publishing platforms (including Amazon, Apple, Google, Barnes & Noble, and the US-based aggregators) will deduct US tax at source.
When the UK author then completes their tax return, these US-taxed earnings must be included. However, the earnings will be treated as having been taxed, so no further tax should be due.
Double Tax Treaty
There is a UK/US double tax treaty (the UK has a similar treaty with virtually every country).
Under this treaty, US earnings for UK residents can be paid gross (in other words, without deduction of US tax). The income will then be taxed in the UK.
Benefits of Receiving Income Before Tax is Deducted
There are several advantages to receiving gross (untaxed) income. The most clear advantage is that the author receives the full payment in their bank account immediately. While UK tax may be due, the author has control and use of that money until payment becomes liable and so, for instance, the author can earn interest on that money.
Equally, the UK tax may never become due. If the author is earning below the tax threshold, then there will be no further liability. By contrast, as I understand (in other words, don't shoot me if I'm wrong), if tax is deducted at the US source, this deduction cannot be reclaimed if the author is earning below the UK tax threshold.
Receiving the full amount also makes the US earnings consistent with regular UK earnings. That said, the amount will be paid in dollars and will need to be accounted for in sterling on the tax return—currency conversion for tax purposes is outside the scope of this note.
Another benefit of receiving gross income arises when UK tax rates are lower than US withholding rates. Put simply, in addition to the other benefits, in this instance, less tax is then paid.
To Take Advantage…
Any UK author who wants their US publisher/self-publishing service to pay earnings without deduction of US tax needs to fill in a form (form W-8BEN) from the US IRS (Internal Revenue Service—the US “tax office”).
Without the form being completed and lodged with the publisher, then the publisher is required under US law to deduct US tax. Once the US publisher has the correctly completed form then they will be able to pay future earnings without deducting US tax. Any shortcomings on the part of the UK author does not create an obligation on the US publisher.
A form needs to be completed in respect of each and every US income source (in other words, if you've got multiple publishers, then a form is needed for each publisher). This form needs to be resubmitted every three years for each payer.
US publishers should be aware of the form and may help the author to complete the form. The self-publishing services often have a standardized questionnaire to guide authors through the process of completing the form.
If you want to know more about this form, head over to the IRS website:
If you look at form W-8BEN, you will note at question 5 that you are required to give your US taxpayer identification. You are required to give either:
- your SSN (a US Social Security Number), or
- your ITIN (an individual taxpayer identification number)
If you are not a US citizen, then you will not have an SSN and will not be eligible for one. Therefore you will need to list your ITIN. The process to acquire an ITIN is set out under the next heading.
Before I move on, note that these links are to the most recent version of the form at the date that this article was posted. You should check out the IRS's “about form W-8BEN” page to ensure you are referring to the most recent version of the form.
Before a UK taxpayer can complete form W-8BEN, they need a US ITIN (an individual taxpayer identification number) from the US IRS. These identification numbers are long-term identifiers. They do not require triennial renewal (as with the W-8BEN form), however, from time to time, the number will expire necessitating renewal.
UK authors who wish to apply for an ITIN using form W-7 would be applying as: “Nonresident alien claiming a tax treaty benefit”.
These links are to the most recent version of form W-7 at the date that this article was posted. You should check out the IRS's “about form W-7” page to ensure you are referring to the most recent version of the form.
The IRS also gives some further explanation about ITINs that you may wish to read.
As well as form W-7, the IRS requires documentation “to establish your identity and your connection to a foreign country”. In short, the IRS will want to see your passport.
Process to Apply for an ITIN
Application for an ITIN must be made directly to the US IRS or to an IRS-authorized Certifying Acceptance Agent. Details of how to apply are published on the IRS website.
In addition to form, the supporting documentation must be sent.
You can breathe easy, the pain stops here.
This stuff is really, really tedious. But fundamentally, it's a matter of filling in some forms, and by filling in forms, an author can receive more money.