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The UK Government has now announced a delay of new off-payroll working rules until April 2021 due to Covid-19. Sargent-Disc looks at how these changes are likely to affect the industry when they come into force.
Will your production’s PAYE processes be affected by HMRC’s proposed changes to the off-payroll tax rules (IR35) for workers providing services to a private sector company through an intermediary? The changes – aimed at reducing tax evasion – will affect how freelancers are contracted, but how far-reaching will this be?
Members of the Cross Media – Off-Payroll Working Group have been assessing the implications. The group, chaired by Ceri Stoner (partner at law firm Wiggin), includes Sargent-Disc director Laurence Sargent and director of tax advisory Tim Gillett, from accountancy firm Saffery Champness.
The group assessed potential impacts based on the unique way people and companies are contracted to provide services for the UK film and TV industry before feeding back to HMRC, which then adapted aspects of its assessment process.These reforms are now to be introduced on 6 April 2021.
The government’s reforms for private-sector companies are intended to improve compliance with the existing rules by moving the tax assessment and payment responsibilities from the contractor to the end client, which in most cases in the sector would be the production company.
“The legislation aims to reduce tax avoidance by those who carry out work in a way that HMRC considers to be indistinguishable from an employee”
Ceri Stoner, Wiggins
These follow similar measures introduced in the public sector in 2017.
“The legislation aims to even the playing field between the public and private sector and to increase tax compliance, by taxing those who carry out work in a way deemed by HMRC to be analogous to that of an employee, the same as if they were actual employees,” says Stoner.
Only medium and large private-sector bodies that meet two of three criteria will have to implement the IR35 legislation. They must have more than 50 employees, an annual turnover of more than £10.2m or a balance sheet of £5.1m or more. Importantly, if a company is owned by a larger firm, the test will apply at group level, says Gillett.
“It will be the production company’s legal duty to determine whether an individual contracted through a third party is ‘in fact’ an employee for tax purposes,” says Stoner. “They will need to review their intermediary service relationships and have robust procedures in place to determine which individuals should be paid through their PAYE system.”
She advises the production company maintains a record of their assessment with a clear explanation justifying why a contractor has been categorised as an employee – or, if HMRC’s online CEST tool was used to determine status, they should keep a copy of the result and the Q&A audit trail generated.
From April 2021, an individual working through a loan out in receipt of an employment status assessment (known as a status determination statement) can challenge the decision of the production company. The production company is then legally obliged to provide a considered response to the contractor within 45 days.
Production companies are expected to be responsible for unpaid tax, potential penalties from HMRC and, if applicable, the apprenticeship levy. Holiday entitlement, student loan repayments and auto-enrolment remain the responsibility of the intermediary that employs the individual.
The HMRC Employment Status Manual provides guidance to help determine the status of individual workers.
The government has agreed some behind-the-camera roles detailed within Appendix 1 of HMRC’s online guidance have self-employed status, provided the individual, or those supplying services through a third party, meet certain criteria. These roles and their criteria are detailed on the HMRC website.
Each time a programme is recommissioned, an individuals’ employment status should be reviewed – is this a new or separate agreement or an overarching, longer-term arrangement?
If circumstances change, the contracting body should look at the whole picture once more and apply HMRC’s general guidance.
Founded in 1986, Sargent-Disc - a Cast & Crew company, is the UK entertainment industry’s award-winning, leading supplier of integrated payroll, residual, accounting and software services. The Digital Production Office®, Sargent-Disc’s suite of apps, is designed to support cost effective, efficient and sustainable production.
This article is for general information purposes. It is not addressed to any specific parties and does not constitute advice (legal or otherwise) to any person.