Jim Yuill of Chiltern highlights differences in the tax and NIC treatment of entertainers.
Despite the fact that one of the key aims of HMRC is to align the PAYE and NIC rules, there are still a lot of differences. None more so than where the Social Security (Categorisation of Earners) Regulations 1978 come into play. These little known regulations look at certain activities and determine whether we have employment or self-employment and, where appropriate, who is the secondary contributor for NIC assessment purposes.
A possible effect of the provisions is to have employment for NIC purposes but self-employment for income tax purposes. One group of individuals who fall within the legislation is entertainers. They are generally regarded as employees and the thinking behind this is that entertainers are often out of work and, whilst so, they should be able to claim Jobseekers Allowance. Such a claim can only be successful if there is a recent history of Class 1 NIC.
An entertainer is defined as a person who is employed as an actor, singer or musician or in any similar performing capacity. The legislation was last amended to take effect from 6 April 2003. This legislation means that an entertainer receiving a salary was treated as an employee for NIC purposes, if they were not already so by having a contract of service. Salary was defined as payments made for services rendered; paid under a contract for services; where there is more than one payment, payable at a specific period or interval and computed by reference to the amount of time for which work has been performed. This wide definition means that the majority of entertainers will be within Class 1 for NIC purposes and the legislation goes on to define the producer of the entertainment as being the secondary contributor.
Although there was significant publicity when the legislation changed, it appears that many entertainers are still operating on a self-employed basis and this has come to the attention of HMRC. Recent discussion with HMRC officials has highlighted the fact that a special initiative is now being mounted to review the employment status of performers in London’s West End and other large provincial theatres.
Given the size of the cast in many of today’s productions, coupled with the fact that HMRC could go back to 2003, considerable sums of money could be involved. It is also likely that HMRC officials will take the opportunity to review the status of support staff, including lighting and sound engineers, stage managers, scenery shifters and so on.
What is interesting are the recent developments relating to musicians in some of the UK’s leading orchestras. There is no doubt they are entertainers, but they were engaged on a self-employed basis. The potential NIC liabilities ran into millions of pounds – money which the orchestras did not have. Following an HMRC review and some apparent intervention at a senior level within the government, it was agreed that the musicians could continue to be selfemployed.
It appears that the frequency at which the orchestra members were paid was sufficient for the payments to fall outside the definition of salary. That being so, there is clearly scope to minimise the damage going forward, but whether past periods can be protected will depend on the facts.
With HMRC being active on this front the matter cannot be ignored. Anyone engaging entertainers should consider their employment status very carefully and remember that if they get matters wrong they will not be able to recover the employee share of the contribution.
This article was first published in Chitlern's 'Tax Focus' (Summer 2007), and is reproduced with the kind permission of Chiltern.
About Chiltern
Chiltern works with private and quoted companies, UK and international private clients, public sector bodies and professional advisers on a range of complex tax and related issues (http://www.bdochiltern.co.uk/pages/1/Home.stm). Chlitern is part of BDO Stoy Hayward LLP.
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