Friends, Thespians, Contributors, lend me your ears.



HMRC come to bury Class 1, not praise it. Dave Morrison reviews HMRC’s consultation document and proposal to align self employed entertainers with other self employed individuals for National Insurance purposes, by moving them from Class 1 to Class 2 & 4 contributors.

‘Alas poor Class 1, I knew it well’, might reminisce an out of work Shakespearean actor in the future, probably out of work for incorrectly adding the word ‘well’ as commonly happens. No such sentiments are likely from producers though; ‘Let me embrace thee, Class 2 adversity, for wise men say it is the wisest course’, they may be exclaiming!

Currently, unless clearly employees for tax purposes, many entertainers, principally actors, are treated as Self-Employed for tax purposes whilst Employed for National Insurance Contributions (NIC) purposes. This is an historic legacy which, inter alia, facilitates access to Jobseekers Allowance for unemployed actors. Whilst actors/entertainers may accept paying higher Employees’ Class 1 NIC rates, unfortunately, it also adds the 13.8% burden of paying Employers’ Class 1 Contributions on the person engaging them. But now HMRC are contemplating reclassifying entertainers as Self Employed for NIC purposes from April 2014, potentially saving producers/engagers money. However, under such a proposal, the potential loss of Benefits Entitlements for members of actors’ union Equity has raised concerns.

The full consultation text is available here:

What is past is prologue

A degree of consensus existed regarding this odd dual status arrangement, successive Governments retained it and the entertainment industry generally accepted it, until ITV Services Ltd decided to take an alternative stance in view of the 13.8% Employers’ Class 1 NIC burden and it all ended up at the Tribunal. At the time of writing, the Appeal Court judgement is awaited but if you want to catch up on previous episodes, then search ITV Services Ltd v HMRC (2011) TC836.

Unfortunately for ITV Services Ltd their case hasn’t been achieving good ratings with the judiciary and, so far, the case seems to be broadening the scope of Class 1 NIC, rather than restricting it. Meanwhile, whilst the Government seeks to encourage Film and TV production within the UK, lobbyists keenly point out that the attraction of 20% Tax Credits on certain UK productions’ costs is somewhat mitigated by the 13.8% Employers’ NIC burden. So, will any changes signal a golden age behind or before us?

Double, double NIC trouble

HMRC’s consultation also highlights the issue of NIC on entertainers’ repeat fees, or more specifically, difficulties with collection of Employers NIC where the rights to a production have moved on from the original producer such that someone different pays ‘additional use’ fees/royalties. Indeed, are these liable to NIC in any event?

So, things needs reviewing and maybe remedies in HMRC do lie, but in striving to be better, oft we mar what’s well, Equity might suggest. Contrastingly, the Musicians’ Union have a slightly different agenda and this may be shaping up into an interesting drama.

The legislation; measure by measure

The Social Security (Categorisation of Earners) Regulations 1978/1689 takes centre stage in this tragedy. Sch 1Part I 5A of the regulations, a legacy primarily designed to protect theatrical actors in a bygone era, actually refers to ‘entertainers’, rather than actors, who receive ANY element of their remuneration by way of salary. So, if an actor is given specific dates for filming does that mean that their remuneration is ‘computed by reference to time’ (as per the regulations), thereby making it salary? Some people think it does, and if that view prevails then virtually all actors would be deemed to be employed for NIC purposes.

HMRC had previously maintained that musicians would not fall within Class 1 NIC as this was not the objective of the legislation. However, since the ITV Services case they have revised their opinion, upsetting many musicians who believe that the extra 13.8% it will cost studios and orchestras etc to engage them will lead to less work. Indeed, one might ask: could HMRC’s view extend to DJs, comedians, magicians or anyone else engaged to fulfil, say, a one hour slot on a bill at a club? Regulation 1(2) defines ‘entertainers’ as actors, singers or musicians, or persons in any similar performing capacity…hmmm!

The liability for Employers’ Secondary Contributions currently lies with the ‘producer of the entertainment’ (Sch 3 Para 10). However, the production company that originally engaged an entertainer for, say, a TV production may no longer hold any rights and not wish to take responsibility for any further NIC costs when repeat fees become due. Indeed, if the production company had since been dissolved, HMRC would have nobody to collect the NIC from but would still be obliged to credit the entertainer with having paid Class 1 Contributions – not an ideal scenario!

Payments from producers operating in places around the globe outside the UK or EEA attract Employees’ Primary Contributions, but not Employers’ Secondary Contributions. An entertainer could even be required to account for their own NIC, which one suspects is less than rigorously enforced given that it might entail registering a PAYE scheme for every entertainer solely for NIC purposes.

Much to do about something

Having Indentified much worthy of reform, HMRC’s consultation document goes on to suggest four potential courses of action before stating that ‘Option 4’ is its preference.

Options 1 and 2 would maintain the status of entertainers as ‘Employees’ for NIC purposes, whilst clarifying the whole Secondary Contributions issue. The two suggestions are to either; (1) facilitate Employers’ Contributions from parties other than the original producer, or; (2) for NIC on repeat fees to be subject to Class 4 NIC. These alternatives ignore the objective of making UK productions more cost competitive and also present other practical difficulties.

Options 3 and 4 seek to align entertainers status so that they become Self Employed for both Tax and NIC purposes, and therefore liable to Class 2 and 4 NIC. Option 3 involves a premium rate of Class 2 NIC which would entitle entertainers to Contributions Based Jobseekers’ Allowance (like Share Fishermen) whilst Option 4 simply aligns them with other self employed individuals. Options 3 and 4 clearly remove the Employers’ NIC burden from producers and other rights owners.

Equity are concerned about members’ vulnerability under Option 4 if Contribution Based Jobseekers’ Allowance is no longer available. HMRC, although accepting that some people might lose out, suggest that actors could still seek Universal Credit and other means tested benefits. Equity, however, remains unconvinced, particularly in view of the so-called ‘Minimum Income Floor’. This is an amount which reduces a Universal Credit claim and the Self Employed will be deemed to be earning a Minimum Income Floor amount (typically 35 hours multiplied by the Minimum Wage less tax and NIC) which will be offset against their Universal Credit claim. It is designed to incentivise work and discourage people from merely claiming benefits. For a more comprehensive explanation see Rob Durrant-Walkers’ excellent article in the 7 February 2013 edition of Taxation.

As you would like it

HMRC’s consultation seeks views based around the following seven questions:

  1. Do you agree that current NICs treatment of entertainers under the Social Security (Categorisation of Earners) Regulations 1978 needs to be changed?
  2. Do you agree that self-employed entertainers should be removed from the Class 1 NICs regime? Please give reasons for your answer.
  3. Do you agree that self-employed entertainers should be placed in the Class 2 and 4 NICs regime?
  4. If you answered “Yes” to Question 3, which of the two possible options discussed in this chapter do you believe should be adopted?
  5.  Having considered [HMRC’s preferred option], do you agree that Option 4 should be implemented as the future NICs treatment of entertainers?
  6.  Do you have any other comments you would like to make about the information contained in this consultation document, or information which you believe is relevant to this consultation?
  7. Do you agree with our assessment of the Taxes impacts of Option 4? If not, please provide evidence for this.

Will many respondents have the resources to provide counter data for the purposes of question 7, should they disagree? Does an incomplete economic assessment by HMRC undermine question 7 which only refers to ‘taxes impacts’? For example, what would be the impact of less actors claiming Jobseekers’ Allowance?

Talking isn’t doing. It is a kind of good deed to say well; and yet words are not deeds.

This article is merely a discursive overview, interested parties should consider their own responses. The interests of the Musicians Union and producers would appear to suit the two Class 2 alternatives (Options 3 and 4) whilst Equity might, presumably, prefer Option 3’s retained Jobseekers Allowance entitlement. Option 3 might sound like an obvious compromise, but a special Class 2 rate might not appeal to those not seeking Benefits Entitlement, although it may still seem better value than Class 1!

HMRC estimates that it could lose an estimated £50 million per year under both Options 3 and 4, but there appears to be no clear indication as to how much any enhanced Class 2 Contributions would  need to be to offset the cost of claims for Jobseekers Allowance (should data be made available?). Would any enhanced rate be acceptable to Equity members and what is the current cost of entertainers claiming Jobseekers Allowance when unemployed? How many perennially out of work actors have enough Class 1 contributions to qualify for Jobseekers Allowance and might not alternative benefits suit them more? The benefits entitlement aspect is probably where the tempest of this debate will manifest, yet the data provided appears insufficient to make an informed decision concerning Option 3.

Despite the Benefits Entitlement issue, HMRC maintain that there is no clear policy rationale for making entertainers a special case and that Option 3 would also ‘run contrary’ to their simplification goal.

All’s well that ends well

The consultation closes on 6 August 2013 (late submissions will, no doubt, be ‘bard‘ from inclusion). Will it Class 2 be, or is it not to be? That is the question.

Dave Morrison is a partner Nyman Libson Paul specialising in Entertainment Industry matters and also chairs the ICAEW’s Entertainment and Media Group. He can be contacted on 02074332448 or