The NIC Heavyweight Clash:

Actors’ benefits versus a producer benefit

In the blue corner, weighing in at 13.8%, a producer cost saving, versus the challenger in the red corner, the mighty Equity, in a heavyweight contest over 10 months of brainstorming.

In fact, you too can be part of this great debate! HM Revenue and Customs (HMRC) have recently published a Consultation Document on the National Insurance status of Self Employed Entertainers and want your views. Yes, that really means you. This matter is likely to affect not only readers who appear on stage, but also has a potential upside for producers’ budgets from 6 April 2014. Which side of the great debate are you on? Do you want to influence it?

So, what’s it all about? Unlike most professions there has been a long tradition that actors are generally treated as Self Employed for tax purposes, with the associated advantageous tax deductible expense rules, whilst being treated as notionally ‘employed’ for National Insurance Contributions (NIC) purposes, thereby enhancing their benefits entitlement. The logic, which goes a long way back, recognises that performers are likely to have periods out of work between engagements and thereby should have access to Jobseekers’ Allowance (not generally available to the Self Employed). It has effectively been Government policy for as long as most of us can remember. Major stars were excluded from this special treatment as they were deemed ‘Key Talent’. Equally, this may not be relevant to performers on long term contracts who may find themselves, by default, deemed ‘employed’ for all purposes.

So, there we all were, happily following the traditional approach….and then along came the ITV Services case. ITV were, shall we say, a little unhappy that the rules described above also involved them paying an amount of Employers NIC at 13.8% over and above the fees paid to performers. This led to a few lawyers making good as the case wound its way through the courts and we’re currently awaiting the latest ruling from the Appeal Court. Unfortunately for ITV and, so called, ‘Key Talent’ actors, the rather keen judiciary who have opined so far went a bit further than anyone anticipated and decided that virtually all entertainers are liable to Employed Earners NIC (Class 1) rather than Self Employed NIC (Classes 2 and 4). This has upset some musicians and also producers who could see their budgets inflated by the additional cost of Employers NIC they would incur. Key Talent performers operating through limited companies are also potentially affected.

So, amongst the furore of producers, musicians and Key Talent, and given that to everyone outside the entertainment world the special status that actors/entertainers enjoy looks rather privileged, HMRC have proposed to re-designate entertainers as Self Employed for both Tax and NIC purposes. Actors would largely pay less NIC, but it is also likely to affect their Benefits Entitlements. Hmmm, what to do?

It’s one of those situations where one can reasonably understand the different views, but depending on one’s sentiments and position in the industry it is possible that you may, primarily, fall on one side of the debate or the other. Equity is concerned about members’ benefits entitlement whereas musicians want to remain as Self Employed because they, we are told, generally feel that the impact of Employers NIC will affect producers’ budgets and, consequently, the amount of work available and foreign competition. But surely there can be a compromise?

Producers could have their costs reduced by these proposals, which will, arguably, either help profits or leave more available to spend on entertainers and the change would also simplify and homogenise the system. But what, exactly, do actors stand to lose in terms of benefit entitlement?

In their consultative document, HMRC put forward four potential proposals for change ( click here ) which range from tinkering with how Employers Contributions are collected, to putting entertainers within the Self Employed NIC regime (Class 2 and Class 4). The latter, contains two alternatives, one involving a special, higher, entertainers’ rate of Class 2 NIC providing eligibility for Contributions Based Job Seekers Allowance. The other, in fact HMRC’s preferred option, is just to re-designate entertainers as Self Employed with the consequential threat to performers’ benefits entitlements.

The debate is likely to focus on HMRC’s assertion that entertainers in need of support are likely to benefit from either Universal Credit or Contributory Job Seekers’ Allowance based on Class 1 NICs from other employments outside of the entertainment industry. The latter appears to assume that the entertainer will have taken other jobs on to supplement income whilst other performers on low incomes would, presumably, be eligible for means tested benefits including Universal Credit. Equity is not convinced by this ( click here ), particularly in view of the so-called ‘Minimum Income Floor’. This is an amount that 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, however, it appears at odds with the realities of the entertainment industry. Some Self Employed trades lend themselves to working longer hours to make up the difference, but attending more auditions doesn’t necessarily result in more income. It should also be noted that whilst Self Employed Class 2 NICs count towards Basic State Pension, unlike Class 1 Contributions, they don’t help with Additional State Pension.

Those with a view or interest might like to use the links above and read more. Given the past political consensus on this subject it may seem surprising that entertainers are being asked to sacrifice their benefits entitlements, most significantly, Jobseekers Allowance. It may be interesting to know how many respondents will support the Special Class 2 Rate option (Option 3 in the consultative document) which has the hallmarks of the classic compromise, entertainers put in a little more than other Self Employed Earners but with it comes a right to Jobseekers Allowance whilst producers benefit from the cost reduction ….we shall see. In ringside boxing punditry terms, Option 3 looks as though it should be way ahead on my card, but the decision is not made by pundits is it? This is an important debate and is worth everyone with an interest getting involved, why not throw your hat in the ring? Above all though, let’s hope that The Treasury ‘judges’ make the right decision.

Dave Morrison, Partner at entertainment specialist accountants Nyman Libson Paul and Chair of the Institute of Chartered Accountants Entertainment Group.