Off payroll arrangements impacting the creative industries

2nd December 2019

Many clients we work with in the creative industries deploy off-payroll working arrangements with suppliers and contractors building their careers on freelance work as they move from project to project, such as actors and other talent, production teams and media consultants.

The Government has become increasingly concerned by an emerging tax gap in this area. In particular, HMRC has expressed considerable concern over the years about the lack of revenue the IR35 legislation has generated.

There have been several high-profile employment status cases such as Pimlico Plumbers and Uber, which continue to highlight the lack of clarity around tax treatments and also from an employment rights perspective.

The first steps to rectify the ineffectiveness of the IR35 legislation started in April 2017 and saw changes within the public sector. This was highlighted within the media with various cases against BBC presenters. The draft legislation aligning the legislation to the private sector and will likely come into effect from 6 April 2020. This has potential to have a significant impact on the sport and entertainment sectors and its workers. At present, where a business engages an individual via an intermediary, normally a personal service company (PSC), then the PAYE and Class 1 National Insurance compliance obligations rest with the service company.

However, a summary of the proposed changes includes:

  • The engager will be responsible for operating the legislation which will apply where the services are provided via an intermediary, typically the worker’s PSC, but would otherwise be considered an employee of the engager
  • Where the PSC is supplied via an agency, or agency supply chain, the agency closest to the worker in the supply-chain will be responsible for operating PAYE and Class 1 National Insurance on the fees paid
  • Workers will no longer be able to claim the 5% deduction for general costs
  • Where the engager is deemed to be small, the intermediary will retain responsibility for operating the legislation
  • For incorporated businesses, the Companies Act definitions test will need to be considered to see whether the legislation will apply and currently, it is drafted for medium and large sized entities only
  • Where the engager is an unincorporated business, only the annual turnover test will apply, but it will need to be considered on an annual basis, rather than every two years, which will applies to incorporated businesses
  • For both incorporated and unincorporated business, where they cease to be regarded as small, the legislation will need to be operated from the beginning of the next tax year

Visit our website to find out more about IR35 legistlation and how haysmacintyre can help you.

Nick Bustin

Employment Tax Director
+44 20 7969 5578
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