Update April 2016: this doesn't apply any more, so don't read beyond this paragraph if you are after current advice! Nowadays you just provide your National Insurance number to prove you are UK, then get access to the tax treaty so pay 0% US witholding tax. For example, Amazon asks you questions to determine this, so it can all be done online with them in about two minutes.
One thing I don't enjoy is dealing with tax people. It's bad enough in the UK (no email, don't answer the phone, don't ring you back, confusing systems). Unfortunately if you publish via US organisations then you have to deal with the US tax department too. It's quite a rigmarole. Basically the US and UK have a tax treaty, whereby you don't have to pay tax on books sold via a US site. However, the US tax system requires you to send letters back and forth to America, waiting for months and hoping they are being processed and haven't gone missing. A process you have to repeat from time to time, using confusing forms and confusing guidance. If you don't then the US Government takes a 30% cut of all profits by default, even though they're not entitled to do so. Oh for a world where you could easily click a box online, or the US bookseller could just tell them you are a verified UK author and therefore don't pay 30% tax.
This applies whether you sell via Smashwords (guidance here) or Amazon.com (guidance here). I have to admit that I've started this process twice already due to things going missing, and still don't have the required forms and numbers. And it isn't clear if you have to do it for each seller, or just once. Also some forms implied that you have to send important documents such as your passport to the US (something I don't want to do, in case it goes missing). I'm a writer, not an accountant!
Update 1 since I started writing this blog post
I found this site. Useful guidance. Unfortunately it means that my current second attempt to get an ITIN number is likely to be rejected because I didn't send my passport. Oh poopy poopy poop poop.
Update 2 since I started writing this blog post
It's all go this afternoon! The same site had an update - a way of getting an EIN number over the phone without bothering with passports. I'm going to try it. It may involve a long phone call to the US during the day, but otherwise it is a much simpler system. Here we go...
My first hurdle was working out how to dial +1 267 941 1099 (there is no plus key on my phone). ... Mmm, no obvious options that applies to getting an EIN, so I took pot luck (option 5) ... Then a cricked neck from holding the phone in place while I waited, listening to the horror of canned music as they told me it was an 8 minute wait. ... I think I accidentally pressed some buttons with my ear, got transferred to a person who told me I had the wrong department. They would transfer me, have a nice day. ... Oh no, I think I got sent back to the original queue. Except I have now been told there will be a 15 minute wait. I'd been booted to the back of a queue that had doubled in size. ... My neck is getting sore. The cat wants biscuits. I wait. ... I listen. Wondering if I will be flustered once someone actually answers? Will I spout random words from the story I am trying to edit, in between alt-tabbing back to the browser? What if that got me arrested as a terrorist? I've heard how serious the IRS is. Rejecting forms if you don't use blue ink, or if you write 'UK' instead of 'United Kingdom'; refusing to speak to you if you are on Facebook or use a phone with a speakerphone (in order to avoid the cricked neck I am getting - "No!" say the IRS, "you must have a cricked neck!") ... The cat is wafting her tail in my face, now I need a wee, but don't dare put the phone down. ... Memories or ringing the UK tax office are surfacing, memories that I'd tried to bury under mounds of earth, horrifying nightmares about civil servants and bureaucracy and being made to feel little. ... I feel like I am going to start sneezing, probably it is the cat's tail setting off my hayfever. ... Just dropped the phone while blowing my nose, rapidly snatched back in panic, but thankfully no buttons have been knocked. I don't have to start again. ... Cat still crying for biscuits and arching her back in front of the computer screen, then headbutting my chin. Thanks. Nearly knocked the phone out of my hand again. ... That music ... The canned music (no, cat, stop standing in front of my monitor, I don't want to see your arse!) ... Almost becoming embedded in my brain, "Ding ding sing don dong" is my best attempt to represent it, with a beat that I'd swear comes from a Casio VL-Tone. ... Looking at the clock I can see that over 15 minutes had passed. And it feels like much longer. Perhaps the clock lies? ... Oh please will someone ANSWER THE FUCKING PHONE? Sorry, sorry, I think I'm going mad. ... Gave in, let the cat out, ran back with heart racing, hoping that I hadn't got through to someone just for them to hang up in the few seconds I was away from the phone. But no, I am still in waiting queue hell.
Update 3 since I started writing this blog post (35 mins since my last update)
I have an EIN! All sorted.
Let me repeat that. I have an EIN!
Took a lot more waiting, then lots and lots of spelling out Welsh place names, but I got it! I have saved it in two files to be safe, and also learnt a lot about how people from Kentucky speak after I'd got my EIN and had a nice conversation with the lady about accents, jobs, and hillbillies.
I have an EIN! Now just to fill in other forms to send to Smashwords et al! (The form has the charming moniker of the W8-BEN I think. Ben. Sounds friendly.) That can be an adventure for another day.
Thank you to Catherine and David!
Update 4 - 12th April 2013
Battling with the form W-8BEN. I know that if you fill in even one bit wrongly you will be rejected. Possibly arrested (depending on what the incorrectly-ticked box means).
I hate forms. There are lots of similarly-worded options to choose between. None of which make any sense. For example, do I need to tick this?
c The beneficial owner is not an individual, derives the item (or items) of income for which the treaty benefits are claimed, and, if applicable, meets the requirements of the treaty provision dealing with limitation on benefits (see instructions).
"I know - I'll look at the instructions!" I said optimistically. Some hope. This is what they say on the 'Instructions for Form W-8BEN':
Line 9c. An entity (but not an individual) that is claiming a reduced rate of withholding under an income tax treaty must represent that it:• Derives the item of income for which the treaty benefit is claimed, and • Meets the limitation on benefits provisions contained in the treaty, if any.An item of income may be derived by either the entity receiving the item of income or by the interest holders in the entity or, in certain circumstances, both. An item of income paid to an entity is considered to be derived by the entity only if the entity is not fiscally transparent under the laws of the entity’s jurisdiction with respect to the item of income. An item of income paid to an entity shall be considered to be derived by the interest holder in the entity only if:• The interest holder is not fiscally transparent in its jurisdiction with respect to the item of income, and• The entity is considered to be fiscally transparent under the laws of the interest holder’s jurisdiction with respect to the item of income. An item of income paid directly to a type of entity specifically identified in a treaty as a resident of a treaty jurisdiction is treated as derived by a resident of that treaty jurisdiction. An income tax treaty may not apply to reduce the amount of any tax on an item of income received by an entity that is treated as a domestic corporation for U.S. tax purposes. Therefore, neither the domestic corporation nor its shareholders are entitled to the benefits of a reduction of U.S. income tax on an item of income received from U.S. sources by the corporation. To determine whether an entity meets the limitation on benefits provisions of a treaty, you must consult the specific provisions or articles under the treaties. Income tax treaties are available on the IRS website at www.irs.gov.
Now I'm more confused than when I started. This is a prime candidate for my 'bad language' tag. You have to be a specialist to even understand it, and that is just one tick box of many! Grrr. Thanks for not being helpful, tax people.