The vast majority of novelists are self employed, yet few fully understand the different company structures that they can set up to both help them effectively run their business as well as protect their personal assets from their business liabilities.
Here in the UK, most authors such as Greg Roberts & Shantaram, decide to go down the self employed route, though whilst this is certainly convenient it offers little protection as this form of business structure is simply an extension of your personal life. It’s worth having a brief chat with your local chartered accountant to see if this structure is suitable for you, particularly in respect to how you manage and account for your expenses in the business and whether you are VAT registered. There is an actual financial figure that your accountant will be able to give you at which point it is generally accepted that it would be more financially beneficial to move from a self employed basis to another company structure – in most cases a limited company.
Operating as a limited company certainly has a number of benefits. The main advantage is that it separates your personal life from your business one, and your liability is generally limited to the amount that you have invested in shares in the business. Your local chartered accountant would be best placed to advise you if establishing this type of company is in your interests, and this will depend heavily on your current earnings, expenses and attitude to risk. Your accountant will be able to setup a limited company for you within a couple of hours, but be warned, there will be costs involved and you will be required to submit accounts and annual returns to Companies House on an annual basis. This information is in the public domain. Your accountant is also likely to point out that you simply can’t dip into the business accounts to withdraw funds in the same manner that you can when you are self employed. As you and your business are separate entities you will need to withdraw funds by either paying yourself (and accounting for the necessary income tax and national insurance contributions) or by declaring a dividend (and accounting for the relevant capital gains tax). Please ensure you check with your accountant about how best to withdraw funds out of your business in a tax efficient and legal manner, and be aware that you can only declare a dividend if there is a profit within the business that is available for distribution amongst shareholders.