Until now I've received payments directly from my publisher, so it's very straightforward to account for them as a net amount and then showing the VAT. From now on all my payments will be coming via my literary agent, who will take her commission first, before sending me a cheque for the net amount.
As I never actually receive the agent's commission, only the net, and she is effectively paying me, do I still have to account for the gross amount for income tax and VAT?
So if the publisher pays me £100 and the agent's commission is 10% and she takes it directly and sends me a cheque for £90. Would my accounts have to show the £100 as an output, with the £10 she has taken as commission an entry on my expenses? Or would I just show the £90 I have actually received in payment? And presumably the same would apply for the purposes of filling in my VAT return?
So the £100 you currently receive from the publisher is actually £83.34 plus £16.66 VAT (is there a self-billing arrangement in place so that they raise and send you a self-billing invoice which you then account for on your VAT return?)
In future, your agent should probably deduct 10% of £83.34 commission (but check your agreement to make sure their commission is on net royalties) i.e. £8.33 to which they add 20% VAT making £9.99, which they deduct from the £100 sending you £90.01. They should send you a statement incorporating a VAT invoice detailing this, and you should still receive the publisher's self-billing invoice directly.
So for VAT you have outputs of £83.34, output tax of £16.66, inputs of £8.33 and input tax of £1.66.
For income tax you have income of £83.34 and expenses of £8.33.