Accounting for payments from literary agent

[Abra1d]

I don't know if anyone can help . . .

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?

Thanks to anyone who can help!

You cannot net off income and expenses.

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.

Thank you for that very helpful reply!