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HM Revenue & Customs (HMRC) has published a consultation paper National Insurance and Self Employed Entertainers, in which it identifies a number of problems with the current special NICs treatment of self-employed entertainers.

In certain circumstances, self-employed entertainers are treated (but for the purposes of National Insurance Contributions only) as being employed earners, such that their payments might qualify for contributions-based Jobseekers' Allowance. The consultation broadly reflects that this arrangement no longer meets its stated aim, in part because of changes in the way people are engaged or receive income, for instance:

• Additional Use Payments or royalties can be paid many months or years after the initial contract; under current rules it is normally the original producer who remains potentially liable for Employers' Secondary NI Contributions.
• Following the Upper Tribunal decision in ITV Services Ltd v HMRC [2012] UKUT 47 (TCC) (7 February 2012) musicians may be engaged on terms within the scope of the regime.

While the consultation stresses that the motivation remains to benefit self-employed entertainers who are at risk of long and/or frequent periods of unemployment, it does in several places mention the risk of loss to the National Insurance Fund in the context of being unable to collect Employer NI Contributions, such as where the engager is/was outside the European Economic Area or has been wound up before the payment of royalties, etc. In either case it is impossible to enforce collection of the employer contribution and problematic to collect primary contributions from the 'employee' - although the employee may still be treated as having made eligible contributions.

The consultation therefore proposes to reverse the current special treatment so that entertainers be self-employed earners for both Income Tax and National Insurance purposes - paying Class II and IV contributions which are ineligible for contributions-based JSA. Of course we are now in the era of Universal Credit, which the consultation recognises will probably be essential to most entertainers in periods of unemployment, alongside any entitlement to contributions-based JSA. The consultation also allows that Universal Credit is means-tested, with tighter controls over eligibility.

The Taxes Impact Assessment towards the end of the consultation suggests that the Exchequer will lose out by £50m a year if the proposed change takes place and entertainers move to paying Class II and IV contributions. We have expressed reservations before about the accuracy of these estimates and it should come as no surprise if the effects of a loss of entitlement to contributions-based JSA, less than offset by the more stringent Universal Credit, mean that the Exchequer somehow finds itself better off.

As a postscript, the consultation also says,

"Whereas HMRC has previously considered the Regulations were not engaged for the majority of musicians by virtue of their contractual terms, the Upper Tribunal decision in the ITV case in February 2012 means that generally musicians may be engaged in such a way that the Regulations apply to them."

Which seems to have taken HMRC (and musicians) by surprise - a case, perhaps, of "Be careful what you wish for".