HMRC has updated its guidance for actors and other entertainers following the decision in the ITV Services case. Fees paid according to national collective agreements are to be treated as salary for National Insurance purposes.
In ITV Services v HMRC [2013] EWCA Civ 867 the court had to decide whether actors engaged by ITV were to be treated as ‘employed earners' for National Insurance purposes under the provisions of paragraph 5A of Part 1, Schedule 1 to the Social Security (Categorisation of Earners) Regulations 1978 (the Regulations) by virtue of the fact that the payments made to the actors by ITV were 'by way of salary' within the meaning of 'salary' as defined in that paragraph of the Regulations.
- The Court of Appeal held that attendance day payments made to actors under ITV contracts were salary payments for National Insurance purposes and not earnings from self employment.
- The amounts paid to the entertainers set apart from self employed earner's fees because they are set according to rates agreed under national collective agreements between producers and the actors’ union Equity under the 'All Inclusive Fees Equity Agreements', the 'Weekly Equity Agreement' and the 'Option Equity Agreement'. Such payments have the characteristics of salary and not fees and are not payments in respect of acting performances.
What is now to be treated as salary for NICs?
- Hourly or daily payments such as overtime or overage payments to which an entertainer is entitled under the contract, even though contingent and whether or not actually paid in practice, are computed by reference to the amount of time for which work is performed.
- This does not cover fees paid under All Rights Contracts. HMRC agrees that these are outside of the NIC regulations.
Points to note
- HMRC says that it "does not consider that Lord Justice Rimer's views expressed at paragraphs 35, 36 and 37 of the judgment (and the conclusions that he reached on the contracts based on those paragraphs) alter the decision of the Upper and First Tier Tribunals that, under the terms of their contract, where an actor is required to make himself/herself available for work as and when required by the engager for the period of the engagement they are performing work (as defined in the Regulations).
- HMRC considers that the principles established in this case cover all 'entertainers' as statutorily defined in the Regulations - 'a person employed as an actor, singer, or musician or in any similar performing capacity'.
- HMRC now expects voluntary compliance with the Regulation.
Retrospective application of the Court of Appeal decision
- Written opinion previously given: where HMRC has previously issued a written opinion to a party that Class 1 National Insurance contributions are not due in respect of payments made under a particular contract because HMRC did not consider those payments to be 'by way of salary', it will not seek recovery retrospectively of the unpaid National Insurance contributions that were due and payable prior to 6 April 2011 (unless HMRC has expressly advised an engager that National Insurance contributions should be operated from an earlier date).
- Extent of written opinion: where HMRC has previously provided a written opinion to an engager that Class 1 National Insurance contributions are not due in respect of a particular contract, and the engager used identical (other than for individual personal details) contract(s) to engage other entertainers, HMRC will not seek arrears of Class 1 National Insurance contributions due and payable prior to 6 April 2011 in respect of these other contracts.
- No written opinion previously given: where HMRC has not given such a written opinion, then it reserves the right to seek to recover any National Insurance contributions arrears under its normal compliance subject to the provisions of the Limitation Act 1980.
What about HMRC’s recent consultation on National Insurance and self-employed entertainers?
- HMRC’s preferred option going forward will be to revoke those provisions of the Regulations that relate to entertainers with effect from 6 April 2014.
- If an amendment is made to the Regulations, such an amendment will only have prospective effect.
Further information
Under the terms of its Non-statutory clearance service to businesses, should an engager have material uncertainty on the National Insurance contributions consequences of a particular contractual engagement with an entertainer, if appropriate, HMRC can provide its view of how the law applies to that contract. Any such requests should be made by formal 'Non-statutory clearance' application to Large Business Customer Relationship Managers, Film & Production or TV Broadcasting Units as appropriate enclosing details of the particular engagement and a copy of the relevant (signed) contract.
Source: HMRC Brief 29/13
Case link: ITV Services v HMRC [2013] EWCA Civ 867