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Setting up a Limited Company as a Self-Published Author in 2022

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Last Updated on September 28, 2022 by Ben Oakley

A no-BS guide on how to set up a limited company as a self-published author. All details up to date as of September 2022.

Setting up a Limited Company as a Self-Published Author in 2022, a Complete Guide & Method

This post assumes several things:

  • You live in the UK
  • You are a self-published author
  • You sell your books
  • You want to make a living selling books
  • You want to set up a limited company as opposed to being self-employed

This guide explains the ins and outs of setting up AND using a limited company as a self-published author.

It also goes over details that other articles don’t. Such as dealing with the monthly variations in royalties and being able to pay yourself a salary and remaining profit in dividends.

I show you the most tax-efficient way to operate a limited company as a self-published author.

It’s easier than it sounds! Here’s what you’ll find inside this guide:

Setting up a limited company

It’s simple to set up a limited company if you’re a UK citizen. All you need is your chosen company name, a small admin fee, and details of who you are.

If you’re the only company director, only put yourself down as a shareholder, as this helps with topping up your salary with dividends later.

Either set up direct at Companies House or use a company service.

I used Rapid Formations to create my company, as I wanted to use their address services. But the choice is yours.

Once you’re ready to start trading, register with HMRC for corporation tax, which effectively makes your company live.

Setting up PAYE with HMRC

This method of setting up a limited company as a self-published author, assumes you are going to be paying yourself a salary, and then topping up your monthly earnings with dividends.

To do this you need to register your company with PAYE tax.

You can do this once your company is set up for corporation tax with HMRC, and it can be accessed from your account settings.

Most tax-efficient salary

Once you’re set up, you’re going to want to work out the funds.

Throughout this guide, which is updated as of August 2022, we use the basis of £2,000/month in gross royalties. You can change this to adapt to your own royalties or income.

A salary is a business expense!

This is an average amount, but we all know royalties go up and down, which is why we look at the salary and dividend option as we move on.

Any employee (you) can earn up to £12,570 before you pay income tax, but you will still pay National Insurance (NI).

The problem here is that your company (you) also must pay employer NI, which can hit small businesses, especially an author-owned company.

The research shows that (as of August 2022) the most tax efficient salary is under £9,100.

At this wage, the employee (you) pays ZERO income tax and ZERO NI.

At this wage, the employer (also you) pays ZERO employers NI.

To make it easier, moving forward in this guide, we put the most tax efficient salary when running a limited company as a self-published author is £9,000

  • Annual Salary: £9,000
  • Monthly Salary: £750
  • Employee Tax & NI: £0
  • Employer Tax & NI: £0

Which if your royalties are bringing in around £2,000/month, is not a lot. BUT here’s where things get more interesting.

Setting up a Limited Company as a Self-Published Author in 2022, a Complete Guide & Method

Topping up earnings with dividends

It’s important to note that a company pays corporation tax on its profits before dividends are paid out.

With the corporation tax currently sitting at 19% on all profits, it means you need to keep back 19% of your remaining profit BEFORE you pay dividends to yourself.

Dividends can be paid out to you once a month, once you see how much money is left after your salary, business expenses, and corporation tax.

I can’t stress enough to keep back the correct amount of corporation tax to pay it once a year.

Some quick facts:

  • There is no employer’s NI to pay on a dividend!
  • Corporation tax on all profits is 19%
  • Pay yourself 81% of remaining profit as a dividend
  • As an employee/shareholder, you DO pay tax on dividends

Dividend tax is currently 8.75% for up to £50,000 for an employee in basic income rate tax level.

If you’re paying yourself a salary of £9,000, you are in the basic income rate tax level.

Example business expense breakdown

This is purely an example, and every author has their own way of working, including book marketing.

Your salary is also a business expense, but to make it easier, we’ll account for that as a separate entry.

Business expense breakdown (monthly estimates)

  • Website/hosting – £35
  • Adobe Photoshop – £20
  • Microsoft Office – £8
  • Cloud Storage – £5
  • Online Subscriptions – £17
  • Email Marketing – £15
  • Advertising £350
  • TOTAL: £450

To pay yourself the most tax-efficient salary of £9,000/year, your company needs to earn royalties of £1,200. See breakdown below:

£9,000/year is £750/month.

Add on business expenses at £450/month, then you get the £1,200 company minimum.

If you are bringing in on average around £2,000/month in royalties, then you will have £800 left over in the company account.

Paying different dividend amounts each month

The difficulty in running a limited company as a self-published author is the variation in the royalty amount you get each month.

Paying yourself a low salary and topping up with dividend payments is one way to counteract that if a limited company is your preferred way of doing things.

For example, using the figures above, you’ve paid yourself a salary of £750 for the month, paid your £450 business expenses and are left with £800 in company profit.

That £800 is taxable for corporation tax at the current rate of 19% which leaves £648 (£152 in corporation tax).

This means you can pay yourself a dividend of £648.

You can only pay yourself a dividend if there are no debts in the company, and the company is in PROFIT. Which as a self-published author should be easy to maintain.

Working out the total salary

Don’t worry, the hard work is done for you in this example. This again assumes the £2,000/month in royalties. Adjust as necessary.

We already know that dividends up to £50,000 are taxable at 8.75% (August 2022).

So, that £648 is taxable at 8.75% which you pay through PAYE. This leaves you £591.30.

All you need to do is take your salary which would be £750/month and add the dividend minus corporation tax onto your salary.

  • Salary: £750
  • Dividend: £648
  • Gross income: £1,398
  • Dividend tax: £56.70 (8.75% of £648)
  • Net income: £1,341.30

Benefits of this method

Using £2,000/month royalties and £450/month business expenses.

  • Total tax paid as an employee: £56.70 (dividend tax)
  • Total NI paid as an employee: ZERO
  • Total NI paid as an employer: ZERO
  • Total corporation tax paid: £152
  • Total tax on £2,000 royalties: £208.70
  • Total take-home pay: £1,341.30

So, to work it backwards:

  • Net pay: £1,341.30 +
  • Business expenses: £450 +
  • Tax: £208.70 =
  • Total: £2,000

There are other ways to pay yourself through a limited company, like taking an adjustable monthly salary to account for royalties.

Interestingly, when I worked out this method using the self-employed process and taxes involved there, this worked out only marginally better at around 0.5% extra for take-home pay.

Is it worth it? I think so. Not only do you have an official company, but you can also be paid by your company as an official employee.

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Ben Oakley is a bestselling author, researcher, publisher, blogger, and mental health advocate from Camden, England. Usually found on Twitter or in the bars and parks of Camden. Agathokakological is his favourite word!

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2 Comments

2 Comments

  1. Author2222

    August 13, 2022 at 4:23 pm

    Honestly, this is the best example of how to use a limited company as a sole author. However, like you say, you can also get the same result going self-employed. At the moment, I am a sole trader and want to become a limited company simply because it makes sense to have my company name above everything. I also like the idea of paying myself dividends. Clearly you think being a LTD company is more beneficial to being an author. However, what are the ultimate downsides do you think?

    • Ben Oakley

      August 22, 2022 at 11:46 am

      Hey Author2222!

      If you’re already running your business as a sole trader, then there’s no real benefit in moving it to a LTD company. Having your company name above everything is surface level stuff, which you can still do as a sole trader.

      Paying yourself dividends results in pretty much the same outcome in terms of profit and taxes as being self-employed. It’s just another way of setting up a company as an author.

      Ben

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