Cat Regs kick-start IR35 in first round

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In a test case concerning class 1 NIC, the IR35 rules were held to engage with the NIC categorisation of earnings regulations, for an actor’s personal company.


The categorisation of earnings regulations (SI 1978/1689), known as the “Cat Regs”, pre-date the IR35 rules. The role of the Cat Regs was to ensure that state benefits were claimable by certain workers even though they were not employees, such as actors and entertainers.

The income paid to the actor by the engager would be subject to class 1 NIC, but the actor would not be an employee for income tax. This allowed the actor to obtain state benefits while “resting” between engagements, but he or she could continue to be treated as self-employed for income tax purposes.

Although the Cat Regs no longer apply to actors and entertainers, there are a large number of NIC disputes waiting on the result of this case.

IR35 status

Robert Glenister is a well-known actor. He provided his services through his personal service company Big Bad Wolff Ltd (TC06143). Both HMRC and the taxpayer agreed that Glenister was an independent actor and that he fell outside the IR35 tests, as had he contracted directly with his clients, he would not have been an employee for employment tax purposes. So the income tax IR35 rules did not apply to the contracts he worked on through Big Bad Wolff Ltd. However, HMRC argued that the NIC IR35 rules did apply to Big Bad Wolff.

NIC Cat Regs

If he was not working through a company, the Cat Regs could have treated Glenister as an employed earner solely for class 1 NIC purposes. HMRC argued that the IR35 hypothetical contract would have brought Glenister within the Cat Regs and deemed him to be an employee – and so that hypothetical treatment should displace his true self-employed status for the purposes of the NIC IR35 rules. HMRC demanded employers’ and employee’s class 1 NIC totalling £147,547 from Big Bad Wolff Ltd, for the nine years from 2004/5 to 2013/14.

Which law applies?

IR35 requires the taxpayer to envisage a hypothetical situation where the individual may or may not be an employee if other intermediaries are ignored.

The FTT was asked to decide whether the NIC IR35 rules should take account of the hypothetical operation of the Cat Regs. As noted above, it was already agreed that IR35 did not impose an income tax charge on the PSC: Big Bad Wolff Ltd.

HMRC argued that it could not have been Parliament’s intention to allow the taxpayer to avoid paying NIC under the Cat Regs by inserting an intermediary company (in this case Big Bad Wolff Ltd). In other words, the NIC IR35 rules should apply because of the hypothetical application of the Cat Regs, even though the Cat Regs themselves could not apply.

The FTT agreed with HMRC and found Glenister should be treated as an employed earner under the NIC IR35 regulations solely because of the hypothetical application of the Cat Regs – even though everyone agreed that he was genuinely self-employed, so that the IR35 rules would not otherwise have applied to him in terms for tax or NIC purposes - and therefore class 1 NIC was due on those services.

Test case

This was a test case for hundreds of similar cases involving actors and entertainers, and an appeal is being considered.

About Rebecca Cave

Consulting tax editor for I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.


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