The Tale Of The Big Scary IRS And The Unknowing UK Writer
Once upon a time, there lived a woman who wanted to write for a living. She wrote YA fiction in the hope that her work would be accepted by a publisher/agent but soon realised that this was going to be more difficult than eating fermented cheese on a full stomach on a humid afternoon (yes, this is very difficult indeed). One day she decided to take the plunge and put her novels up on the internet for sale. She was extremely delighted to find that people were willing to take a chance on her work and pay to read her e-books. Soon she realised she would have to face the tax man to account for her extra earnings so she went online to research the situation.
Her tax status in the UK was fairly straightforward as she lived there and all she had to do was ring the lovely people at HM Revenue and Customs and inform them of her new earnings. She was told to write a letter which would enable them reduce her tax allowance to compensate for her (very humble) estimated earnings. However she discovered that as a non resident of the USA, 30% of her royalties would be withheld by her retailers (Amazon USA, Smashwords) for the IRS (USA tax man). The reduced royalties would be taxed again when she declared her earnings to HM Revenue and Customs (UK tax man). She was unhappy with this news and sought to remedy the situation.
She learned that non USA residents who live in countries that have a tax treaty with the USA can obtain an ITIN (Individual Taxpayer Identification Number) or EIN (Employer Identification Number) which would help them avoid paying the additional 30% tax. She fell into the ITIN seekers group as those seeking EINs would have to be part of a registered company (sadly, she doesn’t have more information on this to share). To obtain an ITIN, she would need a letter from her retailer to confirm that she was going to earn royalties for said tax year. She read on most online forums that Amazon USA letters are usually rejected as they are not on letter-headed paper so she requested a letter from Smashwords and received one in less than two months (she was impressed by their promptness). She also needed to fill out a Form W-7 and provide a notarized copy of her passport or other approved identification documents.
She rang one of the IRS-authorized Acceptance Agents in the UK (aka accountants) and panicked when she was told that their service would cost about £500. This was far more than she expected to give away so she went back to the internet for help. She stumbled upon a post which gave a step by step explanation of how to apply for an ITIN with little grief. The post pointed out key things like the fact that the IRS lacks tolerance for abbreviations (UK = bad, United Kingdom =good) and the fact that the helpful IRS staff at the USA embassy in London would notarise passports for free (you can either post your original documents by special delivery or take a morning off work to do this in person if you live in the area). She also read the Form W-7 guidance notes which were very long and boring but useful.
In her eagerness to get things over and done with, she foolishly wrote her date of birth on the date signing section (these things happen to the best of us) and only found out after she had spent three hours queuing at the London USA embassy. She rang the IRS office in the USA, trying not to sound flustered, and was told to write a letter informing them of her mistake. Six weeks later she rang the IRS to ask if they had received her application and/or letter and was told that her application had been approved! Two weeks later she received a letter of rejection and a letter of acceptance from the IRS (dated a week apart – she blames the postal service) but was overjoyed anyway because she had expected a rejection letter to be issued based on her initial mistake.
Her next stop was to fill out Form W-8BEN for both Amazon USA and Smashwords (remembering to write her username on the Smashwords form as instructed). She is currently waiting for confirmation from both retailers that all has gone well.
She has written this post in the hope that her experience might help others. If it doesn’t, she is still the proud owner of an ITIN and will remain smug about it…for now (she will retract her smugness if there are any issues with her W-8BEN submission).
PS – If you don’t want Smashwords to send you reduced payment when you are waiting for your ITIN etc, remember to click “defer payment” in your account settings. Amazon USA do not have this option and you will receive your reduced cheque but get the difference when they receive your W-8BEN form.