IR35 guidance updated for actors and performers
Ceri Stoner explains how HMRC’s IR35 guidance update will help actors and other performers and offers a positive review for HMRC’s collaboration with stakeholders.
HMRC recently published an updated version of guidance in its employment status manual for actors and other performers (ESM4121 –ESM4126). This follows months of discussions with key industry stakeholders, including Equity, the trade union for actors, performers, singers, models, directors, designers, choreographers, stage managers, and other creative practitioners in the UK.
In a world where little seems certain and the odds can appear stacked steeply against those in the creative industries, the new guidance, informed by industry input, provides greater clarity in respect of the tax status for performers, and should be of significant benefit.
Setting the scene
As many people know, the off-payroll working rules, commonly known as IR35, are changing again from April 2021. The objective of this move, which follows similar measures for public sector organisations, is to ensure that individuals who work like employees pay broadly the same tax as employees, regardless of the structure through which they provide their services,
The rules that have applied in the public sector from April 2017 are now being amended and extended to contracts for all but the smallest private sector clients from 6 April 2021.
While the substance of the rules for determining the employment status for tax purposes of a contract for work between a client and a contractor providing services via an intermediary company are not changing, the responsibility for making that determination and accounting to HMRC for any employment tax will shift to the engager, rather than the contractor’s intermediary company.
The off-payroll rules will apply to all sectors and create additional challenges for many in already testing times. The terms and common working practices of many creative engagements are more likely to be affected, particularly actors and other performers.
Engagers may use HMRC’s CEST employment status checker to decide whether or not the worker should be paid via payroll, but CEST has certain deficiencies and does not function well when used to determine the status of certain performer roles.
In particular performers do not fit easily within CEST question format given, for example, the intermittent working patterns, hiring patterns (with a talent agency often sourcing the talent) and a lack of substitution.
What are the changes?
The updates to the guidance recognise many of the unique features of these performer roles and clarify HMRC’s stance on how they affect the individual’s status for tax.
Most notably, while each contract will need to be assessed holistically on its own merits, most actors and other performers will be recognised as self-employed. Often this is a result of the “itinerant” nature of their work, ie where there are a series of separate engagements or different engagers or simply breaks between contracts.
In business on own account
There is also some useful analysis of other factors that HMRC recognises as indicative of actors and performers being self-employed for tax purposes. This includes examples of activities typical of actors and other performers who are in who are “in business on their own account”, ie those who incur costs associated with running a business. The examples include use of an accountant, an agent, registration with HMRC, membership of Equity and other representative bodies, professional training, networking, obtaining insurance and conducting research.
HMRC has also clarified how it views the “control” test in a performance context, ie where there is a sufficiently high degree of control over the work by the actor or other performer to indicate self-employment.
In this context, there is a distinction between the content of the artistic performance, for example, the script or musical score, which the performer is unlikely to be able to control, and the artistic interpretation by the actor or other performer of that content – in other words, how it is performed. HMRC accepts that the service provided by an actor or other performer is in essence the interpretation of content that is set by another.
The revised guidance recognises the specific risks run by individual performers. In particular the frequent short term nature of the roles and perennial pressure to find the next job, together with the opportunity costs of filming overrunning and the reputational risk of association with a poorly received production.
One helpful acknowledgement by HMRC is that a lack of substitution within a performance context is stated to be non-determinative because of the individual attributes and suitability for the roles.
It is hoped that the revised guidance will mean that many production companies, theatres and other engagers will be confident that they are able to comply with the IR35 rules without the need to move many freelance entertainers onto their payrolls. As such, these businesses should be able to avoid the associated additional costs, including additional employer’s NICs, of engaging performers in this manner. In these times, more than perhaps any other, productions really need the reassurance provided by this clarity.
From the perspective of the individual performers themselves, this guidance should mean that in many cases they may retain their self-employed status for tax purposes. For the majority this will boost their take home pay. It would be a good result if this guidance also helps individuals to weather the current challenges and continue to work in the creative industries.
For all parties, the overriding long term aim is that these revised guidelines will provide sufficient certainty to avoid a new wave of tax disputes between engagers and HMRC – which should be a win for all concerned.
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Ceri Stoner is a partner in the tax group at Wiggin advising companies across all aspects of their taxation requirements, including tax transformation projects, with particular expertise in the technology and media sectors. Ceri has recently created the...