HMRC is consulting on plans to change the system for national insurance contributions (NICs) for freelance actors, musicians and performers, saying that the existing approach does not match current working practices.
The department is seeking views on its publication, National insurance and self-employed entertainers, which sets out the background to NIC payments in the entertainment industry and looks at four possible options for reform.
In its publication, HMRC says it favours the last option, which would return entertainers to the standard Class 2 and 4 NICs regimes as self-employed earners and would remove the special status afforded to entertainers since 1998.
Placing entertainers into the same NIC regime as most other self-employed UK taxpayers would result in a loss of around £50m a year according to HMRC, which says this should be balanced against the £50bn the UK entertainment industry brings in annually to the UK economy.
HMRC says it wants to simplify the rules for self-employed entertainers who only work sporadically, with disparate work patterns and extended periods of unemployment. At the moment, they are subject to regulations which deem their earnings to be subject to Class 1 NICs.
However, HMRC says that this approach, which was originally introduced to earnings-related contributory benefit protection to entertainers, is out of line with working patterns. It points out that many musicians, for example, undertake several engagements a day and are responsible for paying any stand-ins they supply, which makes for difficulties in calculating how much NIC is due on each engagement.
There are also problems with 'additional use payments', such as royalties, which HMRC says are often paid to entertainers via a complex network of commercial relationships surrounding the sale of broadcast rights, commonly involving third party commercial organisations across the globe.
The HMRC consultation says: 'This gap between the strict application of the legislation and the reality of how entertainers are engaged and paid causes fundamental, and in some cases insurmountable, problems.'
Following informal discussions with stakeholders from across the entertainment industry HMRC is now setting out four options for changing the system for NIC payments: maintaining the status quo; simplifying legislation within the Class 1 NICs regime; moving entertainers' earnings into the Class 2 and 4 NICs regimes; or repealing the regulations in respect of entertainers.
The consultation is open until 6 August 2013 and there are details at HMRC.
