HM Revenue and Customs Brief 19/12
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Issued: 14th June 2012
National Insurance Contributions (NICs): HMRC’s position
following the Upper Tribunal decision in the case of ITV Services Ltd.
This brief confirms Her Majesty’s Revenue & Customs’
(“HMRC”) position following the decision in the case of ITV Services
Ltd (“ITV”) at the Upper Tribunal (“UT”). The case concerned the
application of the Social Security (Categorisation of Earners)
Regulations 1978 (“the Regulations”) to payments made to actors engaged
by ITV under specific contract types. The tribunal found against ITV
and upheld the decision of the First Tier Tribunal (“FTT”) (see R
& C Brief 10/11 issued 2 March 2011) that the actors’ contracts
provided for remuneration by way of salary and there was liability for
Class 1 National Insurance contributions (“NICs”) under the Regulations
on all the remuneration payable under the contract types.
You can read the full text of the UT decision on the Tax
Tribunals Service website ITV
Services_Ltd_v_HMRC (PDF 82K) (Opens new window)
ReadershipIssued: 14th June 2012
Any individuals or businesses engaging entertainers as
actors, singers or musicians; or in any similar performing capacity,
and the representative bodies for any of these groups are advised to
read this brief.
Action required by those engaging entertainers
The decisions of the FTT and UT in the case of ITV have
clearly stated the law on the matter. HMRC now expects those in the
industry engaging entertainers to comply with the Tribunals’ decisions.
The Regulations relating to entertainers were introduced to
provide earnings-related contributory benefit protection to
entertainers. At the time the Regulations were introduced it was
accepted that a small number of highly-paid celebrity entertainers
referred to by the entertainment industry as “Key Talent” or “Marquee
Talent”, would be excluded because they did not need earnings-related
contributory benefit protection.
HMRC believed that the wording of the Regulations in 1998, as
amended in 2003, excluded certain entertainers not paid by way of
salary (as defined in the Regulations) and that one such group was
those entertainers termed “Key Talent” . However, it has now become
clear that many entertainers termed “Key Talent” are engaged
contractually under terms which bring them within the ambit of the
HMRC also believed that the majority of musicians not engaged
directly under employment contracts were excluded from the Regulations
because they were not paid by way of salary. The decision of the UT in
the ITV case now clarifies that musicians’ contracts which HMRC
previously believed to be outside the ambit of the Regulations, and
where in some cases it had given a written opinion to that effect, are
in fact within the Regulations.
The FTT in its decision of 23 November 2010 found that,
except for the ITV “All Rights Contract”, where the contract specifies
a fee without any relation to time taken, all other actors’ contracts
including bespoke contracts (used extensively for engaging “Key
Talent”,) provided for remuneration which included salary. One of the
grounds of ITV’s appeal was that the FTT erred in concluding that the
contractual payments computed by reference to the time services are to
be rendered fell within the definition of salary in the Regulations.
The Upper Tribunal’s decision
The UT rejected the “are to be rendered” argument and all
other of ITV’s arguments and decided that entertainers’ contracts are
forward looking and the wording of the legislation is consistent with
the natural contract-based interpretation of the notion of
‘remuneration’ and in the context of the NICs legislative regime. This
means that the Regulations apply to any contract that provides for
payment for the individual’s time for some definite or indefinite
period (as opposed to being for a specific performance). However, the
judge also observed that contracts that include reference to hourly
payments such as overtime or overage payments, if and when paid, that
will be computed by reference to time, fall within the ambit of the
Regulations irrespective of whether such additional payments are
actually made to the entertainer.
The effect of the Upper Tribunal’s decision
The UT decision has provoked comments from some observers
from the entertainment sector as to the correct interpretation of the
penultimate paragraph of Revenue & Customs Brief 10/11. In
particular, a query has been raised as regards the category of
entertainer to which the following statement was intendIssued: 14th
June 2012ed to apply:
“ HMRC is obliged to apply the law immediately to all Equity
contracts that are newly entered into, revised, renewed or extended
from the date of this briefing (2/3/11) and from 6 April 2011 in
respect of all current Equity contracts that continue beyond the end of
the 2010/11 tax year, which are of a type that had previously been
accepted by HMRC as falling outside of the regulations”.
That paragraph referred to the liability for Class 1 NICs for
all actors on Equity contracts. The second part of that statement made
no concession for any specific type of contract, it simply deferred
compliance with the FTT decision to the beginning of the new tax year
in the limited circumstances where HMRC had previously given a written
opinion that a particular contract (or contracts in cases where more
than one actor are engaged on precisely the same terms in the same
production) fell outside of the Regulations.
It has also been suggested that the following extract from
the Employment Status Manual 4147 shows that HMRC previously took the
view that those entertainers referred to by the industry as “Key
Talent” are excluded from the Regulations:
“ The last bullet ensures that Key talent artistes are
excluded from the Regulations as they will be contracted to appear in
productions for which their remuneration is not directly calculated
according to the period of weeks or months they are assigned to the
HMRC is of the view that the above extract in respect of “Key
Talent” artistes makes it clear that only those entertainers engaged
without specific reference to time are intended to be excluded from the
Various HMRC guidance published since 2003 clearly
articulates that those “Key Talent” entertainers whose remuneration
does not include any element of “salary” – that is the remuneration
payable under their contract of engagement does not include any payment
computed by reference to the amount of time for which work is performed
– are excluded from the Regulations. See particularly Tax Bulletin
Issues 65 and 74.
In its published “Guidelines
on the SIssued: 14th June 2012pecial NIC Rules for Entertainers (PDF
194K)”, HMRC clearly explains that the Regulations are to be
applied to the exact terms of a particular entertainer’s contract in
order to determine whether the earnings from the contract are to be
treated as employed earnings for NICs purposes.
HMRC’s position going forward
“ Actors” and “entertainers” were referred to specifically in
Revenue & Customs Brief 10/11. To clarify, liability for Class
1 NICs arises in relation to all types of entertainers (for example,.
musicians, singers) engaged under contracts where the remuneration
includes an element of salary (as defined in the Regulations).
HMRC has no plans to undertake concerted compliance activity
in the media sector in respect of entertainers and the Regulations as a
result of the ITV Services case. It will, however, continue to
scrutinise those cases currently the subject of investigation and to
apply its normal risk based approach to identifying cases which
represent a high risk in terms of tax and/or NICs and it reserves the
right to investigate such cases.
Where HMRC is undertaking, or unIssued: 14th June 2012dertakes,
an investigation into an entertainer or media company, it will apply
the law in terms of the Regulations as enunciated by the UT.
Retrospective application of the Upper Tribunal’s decision
The extent to which HMRC will seek to apply the UT decision
retrospectively will be determined by a number of different factors.
Written opinion previously
Where HMRC has previously issued a written opinion that Class
1 NICs are not due in respect of a particular contract because HMRC did
not consider that it provided for payment by way of salary, it will not
seek from the party to whom that written opinion was given
retrospective recovery of the unpaid NICs that were due and payable
prior to 6 April 2011(unless HMRC has
expressly advised an engager that NICs should be operated from an
Extent of a written opinion
Where HMRC has previously provided a written opinion to an
engager that Class 1 NICs are not due in respect of a particular
contract, and that engager used an identical (other than for individual
personal details) contract to engage other entertainers in the same
production, HMRC will not seek arrears of Class 1 NICs due and payable
prior to 6 April 2011.
No written opinion previously given
Where HMRC has not given a written opinion, then it reserves
the right to seek retrospective recovery of any NICs arrears under its
normal risk based approach, and subject to the provisions of the
Limitation Act 1980.
ESM 4147 will be updated shortly to reflect the position
following the UT decision.
Under the terms of its “Non-statutory
clearance” service to businesses, should an engager have
material uncertainty on the tax (or NICs) consequences of a particular
contractual engagement, 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.
About the Author
© Crown Copyright 2012.
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Article Published/Sorted/Amended on Scopulus 2012-07-05 14:34:29 in Tax Articles