How does or will the IR35 affect actors' taxes?
How does or will the IR35 affect actors' taxes?
In this article, we will talk you through what IR35 is, the changes that have been implemented this year, and how these changes are beneficial for the actors.
What is IR35?
IR35, also known as off-pay working rules, is an employment status test for tax.
Check employment Status for Tax (CEST) is a tool used by intermediary companies to determine whether a worker is 'self-employed’ who are ‘in business on their own account’ or they must be paid through payroll.
What are the changes happening?
From April 2021, all public authorities, medium to large-sized clients outside the public sector are given the responsibility to determine whether an individual is self-employed or not.
If the worker is providing services to a small client outside the public sector, the intermediary (e.g. talent agency) is responsible for determining their employment status.
The changes provide guidance and clarity for intermediaries as the new IR34 recognizes the distinctive aspects that entail being a performer, such as being an ‘itinerant pattern of work’ mentioned in the Employment Status Manual.
Employment Status Manual
The HMRC has published Employment Status Manual ESM4121 to help clarify what is indicative of self-employment:
1. The performer has an itinerary pattern of work:
· Several engagements which may be consecutive or concurrent.
· Several different engagers
· May have periods of unemployment between engagements. During these periods the individual may be undertaking activities relevant to the occupation such as learning lines, updating skills, preparing for auditions, networking, and so on.
2. The performer takes steps to build a business, incurring the costs of maintaining a business structure, beyond attending rehearsals and performance
3. The performer has a high degree of control over the work performed. In the context of performers
4. Performers may incur substantial costs in preparing and attending multiple auditions; or in purchasing professional self-taping equipment or services, without any guarantee of obtaining additional work.
5. if the performer has an unfettered right to send a substitute or deputy in their place at short notice, who is booked and paid by the performer this is indicative of self-employment
6. The performer provides their equipment, which is both significant and fundamental to their role.
(Source: https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm4121)
How will the changes in IR35 affect actors’ taxes?
Intermediary companies had difficulties in using CEST as it was harder to determine the employment status of certain performer roles, as well as the options available, were restricted.
This resulted in many of the production companies placing performers on PAYE contracts. As a result, actors were incurring the same amount of Income Tax and National Insurance as an employee would, despite the majority being self-employed.
The 2021 IR35 change clarifies that most actors and performers are considered self-employed for tax purposes and resolving the tax disputes that were often happening before the changes.
It needs to be taken into account that an actor may steel be considered as an employee if they do not meet the majority of the indicative factors stated in Employment Status Manual ESM4121.
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