Revenue & Customs Brief 29/13

National Insurance contributions: HM Revenue & Customs' position following the Court of Appeal decision in the case of ITV Services Ltd v Commissioners for HMRC

Purpose of the Brief

This Brief sets out HM Revenue & Customs' (HMRC) position following the decision by the Court of Appeal (CoA) in the case of ITV Services Ltd (ITV). The case concerned the employment status for National Insurance contributions purposes of actors engaged by ITV under specific contract types. The Court handed down its judgment on 23 July 2013 and found against ITV unanimously upholding the decisions of the First Tier Tribunal (FTT) and Upper Tribunal (UT) that the actors' contracts provided for remuneration by way of salary and there was liability for Class 1 National Insurance contributions on all the remuneration payable under the contract. See also Revenue & Customs Brief 19/12 issued 14 June 2012.

Revenue & Customs Brief 19/12 issued 14 June 2012

You can read the full text of the decision on the British and Irish Legal Information Institute's website:

ITV Services Ltd v Commissioners for HMRC (opens new window)

Readership

All national broadcasters, film companies, theatre managers, independent production companies, their representative bodies and agents in the Film & TV Production Industries, Equity, individual entertainers and any other companies engaging entertainers to whom this judgement may also be relevant are encouraged to read this briefing.

Background

By a decision released on 23 November 2010, the FTT dismissed the appeals by ITV against three determinations made by HMRC. ITV appealed the FTT decision to the UT. By a decision released on 7 February 2012, the UT upheld the decision of the FTT and dismissed ITV’s appeal. On 25 May 2012 ITV was given permission to appeal the decision of the UT to the CoA. This appeal was heard on 12 and 13 December 2012 and 18 March 2013.

ITV's appeal to the CoA again focused primarily on whether actors engaged by ITV were to be treated as ‘employed earners' for National Insurance purposes under the provisions of paragraph 5A of Part 1, Schedule 1 to the Social Security (Categorisation of Earners) Regulations 1978 (the Regulations) by virtue of the fact that the payments made to the actors by ITV were 'by way of salary' within the meaning of 'salary' as defined in that paragraph of the Regulations.

The CoA decision

By a decision handed down on 23 July 2013, the Court unanimously dismissed ITV's appeal and upheld the principal position maintained by HMRC throughout that whether or not the provisions of the Regulations apply is to be determined at the outset of an actor’s engagement by reference to the terms of their specific contract.

In particular, the Court decided that where contracts between the engager and the entertainer incorporated the payment provisions of collective agreements (that is, national standard agreements negotiated between producers' representatives and Equity) the effect of such provisions would be to include payments 'by way of salary' as defined. Save for what was described as an 'All Rights Contract' (which HMRC had previously agreed was not within the Regulations), the two 'All Inclusive Fees Equity Agreements', the 'Weekly Equity Agreement' and the 'Option Equity Agreement', the Court found that the remuneration agreed to be paid under all other contracts presented to it included payments provided for in the collective agreements (for example production day and attendance day payments) and, therefore, included a payment by way of salary. Furthermore, except for the All Rights Contract, in all other contracts where the terms entitled the entertainer to receive payment on a contingent basis (for example on account of overage/overtime), that payment was a ‘payment by way of salary'.

HMRC does not consider that Lord Justice Rimer's views expressed at paragraphs 35, 36 and 37of the judgment (and the conclusions that he reached on the contracts based on those paragraphs) alter the decision reached by both Tribunals below that, under the terms of their contract, where an actor is required to make himself/herself available for work as and when required by the engager for the period of the engagement they are performing work (as defined in the Regulations). Both the other CoA judges (Sir Stanley Burnton and the President of the Family Division, Sir James Munby,) expressed reservations on Rimer LJ's comments on this issue but reserved their position, since it was not necessary to determine the point to determine the appeal.

Future application of the Regulations following the judgment

Although the specific contracts cited in the CoA judgment only concerned actors engaged by ITV, HMRC considers that the principles established in this and the previous decisions in the Tribunals below cover all 'entertainers' as statutorily defined in the Regulations - 'a person employed as an actor, singer, or musician or in any similar performing capacity'. HMRC now expects those in the industry engaging entertainers to comply with the Court's decision.

In particular all three judges agreed with the UT in its observation that hourly or daily payments such as overtime or overage payments, to which an entertainer is entitled under the contract, even though contingent and whether or not actually paid in practice, are computed by reference to the amount of time for which work is performed and are consequently payments by way of salary. This part of the judgment will have particular significance for those actors and musicians whose contracts are subject to the terms providing for payments under collective agreements with Equity and Musicians' Union respectively.

Given that HMRC now expects voluntary compliance with the Regulations, it does not intend to undertake concerted compliance activity in the media sector in respect of entertainers as a direct result of the ITV case. It will, however, continue to apply its normal risk-based approach to identifying individual cases which represent a high risk and reserves the right to investigate such cases. It will also continue to scrutinise those cases currently the subject of investigation.

Where HMRC is undertaking or undertakes an investigation into an entertainer or media company, it will apply the law in terms of the Regulations applying the decision and judgment of the UT and the CoA.

Retrospective application of the Court of Appeal decision

HMRC's position regarding retrospective liability is that set out in Revenue & Customs Brief 19/12 on 14 June 2012, following the UT decision. As such the extent to which HMRC will seek to apply the CoA decision retrospectively will be determined by a number of different factors.

Written opinion previously given

Where HMRC has previously issued a written opinion to a party that Class 1 National Insurance contributions are not due in respect of payments made under a particular contract because HMRC did not consider those payments to be 'by way of salary', it will not seek recovery retrospectively of the unpaid National Insurance contributions that were due and payable prior to 6 April 2011 (unless HMRC has expressly advised an engager that National Insurance contributions should be operated from an earlier date).

Extent of written opinion

Where HMRC has previously provided a written opinion to an engager that Class 1 National Insurance contributions are not due in respect of a particular contract, and the engager used identical (other than for individual personal details) contract(s) to engage other entertainers, HMRC will not seek arrears of Class 1 National Insurance contributions due and payable prior to 6 April 2011 in respect of these other contracts.

No written opinion previously given

Where HMRC has not given such a written opinion, then it reserves the right to seek to recover any National Insurance contributions arrears under its normal compliance subject to the provisions of the Limitation Act 1980.

Consultation on National Insurance and self-employed entertainers

HMRC is mindful of the fact that it undertook a recent public consultation on options for amending the National Insurance treatment of entertainers at some point in the future and that its preferred option was to revoke those provisions of the Regulations that relate to entertainers with effect from 6 April 2014. If an amendment is made to the Regulations, such an amendment will only have prospective effect. The CoA judgment concerns the current and retrospective application of the relevant provisions in the Regulations and therefore will apply to any contracts entered into up until the point that any amendments to the current Regulations come into force.  HMRC will be publishing a summary of the consultation responses and confirm the intended way forward later this year.

Further information

Under the terms of its Non-statutory clearance service to businesses, should an engager have material uncertainty on the National Insurance contributions consequences of a particular contractual engagement with an entertainer, 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.

Issued: 2 October 2013