Here are Suzanne's questions.
1. I think I know how advances and royalties work, but it would be good to know if what I think I know is right. (Here follow the general basics, with resources to take you further.)
An advance is the money paid by the publisher to the author before the book is published. It can range from nothing (literally) to A Lot. It is usually paid in two or three instalments. If two, it will be two out of the following: a) on signature of contract b) on delivery and acceptance of MS and c) on publication day. The advance does not have to be paid back if the book does badly or the publisher decides not to publish after all, UNLESS the MS which you finally deliver is unacceptable and you cannot make it acceptable, or you break your contract in another specified way.
"Advance" means "payment in advance of royalties". The royalty payment is an agreed % of revenue on each book sold. (Note the word "revenue". If your contract says that your royalty will be paid on "nett receipts", this means that if your royalty is 8%, you will receive 8% of the money received by the publisher from the bookshop, in other words after the often high discount has been deducted. So, if your publisher gave the bookshop 60% discount, your royalty will be 8% of 40% of the cover price, not 8% of the actual price.)
In practice, and put simply, it works like this: you receive your advance. When your book has sold enough copies that all your 8% portions add up to the advance, your book has "earned out its advance". From then on, you receive royalties. If your book never earns out - as often happens - you won't receive anything more, but nor will you have to repay your advance.
a) For much more detail about the intricacies of the royalty clauses in your contract, see Stroppy Author's blog under the label Understanding your publishing contract. Take a cup of coffee with you - Stroppy is the mistress of detail in contracts and there are many posts under that heading.
b) Foreign rights have an impact on when your advance earns out - see below.
c) I recommend that you do not value a high advance over a lower one. The huge danger of a high advance is that it does not earn out, which means that your publisher might be less keen to commission you again. Large unearned advances will hinder your career.
d) Sometimes you might write a book for a flat-fee, not an advance. This is often what happens in educational publishing or if you are contributing to a series. There is nothing wrong with this in the right circumstances. It's good for cash-flow, because you'll be paid sooner and some books have a short shelf life and might easily not get to royalty stage. However, I strongly recommend that you build something into the contract that allows you to receive further payments if the book or series does well - for example, if it reprints, or sells a certain number, or if they use the material again in a new edition. I have done very nicely like this from Egmont's I Can Learn series, which I wrote.(It did so well that I probably would have done better with royalties, but a) it wasn't possible and b) I did well enough and can call myself a best-seller because of it. (Seven out of the top ten children's non-fiction were mine at one time...)
e) Also, head off to Jane Smith's recent blog post, where she discusses advances, rights and extra things such as escalator clauses.2. Foreign deals: I would be very interested to learn something about these as I know nothing at all.
Foreign can mean translation or territory. (For example, US/Canadian rights are still English language but are a separate territory and can have separate publishers.) Either you (and agent if you have one) have retained the foreign rights or you sold them to your main (home territory) publisher along with the first rights in your own territory. If you have them, obviously you can sell them to foreign publishers, thereby getting another advance (usually much smaller) and royalties. If your home territory publisher has them, he should try to sell them. When he does, he tells you, and he knocks the foreign advance+royalties off the advance he's paid to you. So, if you had a £5000 advance, and the UK publisher sells rights to France for £1000, you then only have £4000 of your advance left to earn, so you will get further royalties earlier than otherwise.
The selling of foreign rights is the prime reason why I'd always recommend having an agent if you can, unless you are an expert. Generally, you and your agent should try to keep at least foreign language and TV/film rights. Your publisher should pay you a bigger advance if he keeps these.
Same applies to audio, digital and TV/film rights - if your publisher owns them, he can sell them and add the fees to your balance sheet.
If your publisher has any of these rights and doesn't sell them after a reasonable period of time, you can ask for the rights to revert to you and then you can sell them yourself.
Again, see Stroppy's blog posts about contracts.She has much more detail.3. As a self-employed book-keeper in the day job (ug) I don't have a problem with tax returns and such, but I have met a number of would-be writers who panic at any mention of the Inland Revenue - they have no idea how to set up as self-employed or at what point they would be liable for income tax and national insurance. Some people I've spoken to have even been surprised tax isn't deducted at source. (Answers apply to the UK only.)
Everything you need to know is on the HMRC website. (Her Majesty's Revenue and Customs - the Inland Revenue as it used to be called.) EDITED TO ADD: don't forget to claim all allowable expenses to set against tax and thereby reduce your tax liability. The HMRC page is here: http://www.hmrc.gov.uk/incometax/relief-self-emp.htm)
Basically, you tell them you're self-employed; they ask some questions to establish that you are your own boss and that's you registered.
For National Insurance and income tax stuff, see this page. Note where it says, "You'll need to keep business records and details of your income so you can fill in an annual Self Assessment tax return." This is not complicated and you don't have to do it in a certain way - just keep receipts and record them so that you can add them up. Some details and advice are here.
Income tax - once you are self-employed, none of your income from self-employment should ever be deducted at source. When you send invoices, make this clear. (Especially to local councils and universities. Grrrr.)
Don't be frightened of any of this stuff. HMRC are very helpful and have loads of leaflets. You can phone them with your queries. They may want to take your money but they make it very easy for you to give them the right amount.
Make sure you claim everything you are entitled to. A proportion of fuel bills if you work at home, for example, and many other "use of home" expenses. The information is all there on the HMRC site.
The Society of Authors also have useful leaflets.4. How feasible it is to expect to earn a living from writing. Just how flexible do you need to be? How many income streams should a working writer aim to secure? And, how long does it take to build up a reasonable income (I know this will depend on how hard someone's prepared to work)?
It's very difficult to earn a living from writing but much easier if:
- You also do things like public speaking.
- You value your expertise enough to charge for it.
- You are very businesslike in your attitude. See Adrian Mead's blog post here.
- You are diverse in your writing. The more irons in the fire, the greater the chances. And one thing can lead to another.
- You write the "right" sort of books - in other words, books that sell in decent numbers. See my post here.
So, to answer the specific bits of the question: a) feasible but harder than most people think b) very c) depends on what they are, but three would be a good start d) it depends on what they write.
One thing I'd add to that last point, as it is also relevant to the over-riding question of how the money side of things works for authors: the book that you are writing now is a long way from actually bringing you any money at all. Supposing a publisher contacts you TODAY and says he loves it, the contract is probably still some months away, so your first payment can't be till then. Delivery of the finished MS will be some more months away. Publication could be 18 months away. The first royalties won't be computed till at least six months after that, and will need to allow for returns from the bookshops.
Patience is one thing we all need in truck-loads.
Thanks, Suzanne, for your questions!
Excellent advice as ever, Nicola - and thank you for your kind words. [I blush, I blush.]
I agree with you about not pushing for a huge advance, but it's worth noting that some agents are very keen to get a large advance (because they get a percentage of it), so you might have to rein in your agent.
Children's non-fiction is currently not a great source of income as publishers are hanging back, worrying about the impact of the web and digital. I now do much less cnf because it's just not being commissioned.
(Sorry about that deletion - missed out a word first time and it didn't make sense!)
Very informative post, thank you! Money & tax seem very complicated if you're new to it all so this was great.
And, off topic, the I Can Learn series is one of the best pre-school series I've seen (and I have looked at A LOT for my three year old son!) so many thanks for that too.
Oh to actually reach the dizzy heights of paying tax, of even having to declare an income!
This is a brilliant post, Nicola, thank you so much.
Nicola, this is marvellous - the real thing that most of us want to know a propos self-employment is how this fits with our day jobs - most of us won't be just writers. In other words, if we have day jobs but earn £100 or so from article writing what do we do? That's much more relevant than going straight in full time I'd wager
And at what earnings point can we start to write things off that we incurred against that earning? Most of all, at what point do we have to start paying NI - is it a ratio of day job/writing or is it an amount?
Great article. It makes interesting reading when you compare the pay structures to how the screenwriting industry works. I've been shocked to discover how little even well established novelists earn from their writing!
As storytellers we need to find a variety of ways to earn from our writing. The rapidly expanding film, TV and internet screen industries offer many opportunities for those who have talent but are also organized and pro active.
The following is a link to the Writer's Guild page for screenwriting fees. These are the BASIC fees before negotiations. You would expect to get a lot more once you are established.
Thanks, Nicola, for a super post. I'd been hoping I'd stumble into an informative blog such as yours. The tax laws are different in the U.S. so I scanned that but the rest fit perfectly.
Stroppy - agree re that point about agents. Also re cnf not being as good an earner as it was - but most genres have the same problem, I think.
Rebecca - hooray!
Dan - I'll do something about this soon but in essence: "And at what earnings point can we start to write things off that we incurred against that earning?" If you are registered self-employed, then you can start to set things against tax immediately, however little you earn.
Re "Most of all, at what point do we have to start paying NI - is it a ratio of day job/writing or is it an amount?" As soon as you are registered as self-employed, you are liable for fixed rate Class 2 contributions; then, once you reach a certain threshold (can't remember but same as tax threshold?) you have to pay Class 4, which are proportional to income. BUT if you earn very little from writing you can apply to be exmplt from NI. That would apply if you just earn from the occasional article.
Adiran - agree - thanks for that link. Looking forward to your guest post on screen-writing!
I was advised by the IR that I should register and declare my earnings from writing even when they were only £100 for an article... it was very simple to do, and later paid off because I was able to spread my first real book earnings backwards, reducing my first tax bill (not allowed any more, though you can still do "literary averaging" over 2 years).
But a word of warning: do not assume that just because you earn enough to give up your day job one year you're always going to be able to earn that much! Writing income can vanish as suddenly as it comes, and Nicola's absolutely right that no amount of hard work will save you if you're writing the wrong kind of books... I just wish someone had told me this ten years ago!
Really useful this - thanks!
Great post, thanks.
Dan, I'm in just the position you describe. I'm a civil servant but did earn exactly £100 last year from writing and rang up Customs and Revenue to see what to do. Apparently if it's likely to be a one-off, they'd just deduct the tax along with your PAYE but that would mean you wouldn't be able to set any expenses off against it. So I've opted to fill in a self-assessment return. You still call yourself self-employed but give details from your day job too, eg P60. I'm still only 1% into completing the form online but have now started writing down all my income/expenditure on magazine subscriptions, paper etc ready for future years when hopefully the amounts involved won't seem quite so silly! As for NI, I presumed that was covered by my day job.
Whoops, just read Nicola's reply concerning NI which has got me a bit worried. Better look into that.
Sorry to be a nuisance but will HMRC collect this Class 2 NI contribution along with the tax or will I have to register separately?
Kath - check out the HMRC website at the self-employment + National Insurance page. http://www.hmrc.gov.uk/working/intro/selfemployed.htm#3
You don't have to pay till you earn £5,075 and the best way is through direct debit. I'm afraid it's so long since I registered as self-employed that I can't remember anythig, but it all seems very clear on the website. (I have been self-employed since 1985!)
Re things you can record to reduce your tax bill, this is what you need: http://www.hmrc.gov.uk/incometax/relief-self-emp.htm (I have just added it to the main post)
Thanks, Nicola, and thanks for a great blog that I recommend to all my writing friends.
One important thing to remember about the taxman, rephrased from memory from the Society of Authors' leaflet:
They Don't Work On Commission.
It's their job to see to it that you pay exactly the amount you're due to pay, no less, but also, no more.
Very helpful post, thank you Nicola.
Oh, I hadn't realised you'd already blogged on this.
I got a royalty statement that was a bit of an eye opener and it was all about export sales.
Your publisher might have negotiated several territories, etc, and one of them might even be your homeland, which is nice because it means all your friends and relatives who ask 'where can I get it' can be told 'in a book store'.
And because it's a firm sale, it all helps towards earning back the initial advance.
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