This time last year I blogged explaining the complex National Insurance rules for entertainers and how their application could result in overpaid National Insurance.<\/p>\n
In a year much has changed:\u00a0 recognising the existing rules were difficult to implement, last May HM Revenue & Customs (HMRC) opened a consultation on simplification.\u00a0 Of the nearly 12,000 responses received, 99% supported the proposal to repeal the regulation that treats an entertainer as self-employed for tax purposes, but employed for National Insurance.<\/p>\n
The result is that from 6 April 2014 individuals working in the entertainment industry are treated as self-employed for both tax and National Insurance purposes.<\/strong><\/p>\n What does this mean for the entertainer?<\/em><\/strong><\/p>\n The best way to illustrate the impact of these changes is through a simple case study:<\/p>\n Margot\u00a0is a self-employed actor.\u00a0 In the 2014\/15 tax year\u00a0Margot is cast in a play produced by GJ Theatre Productions Ltd.\u00a0 GJ Theatre Productions agree to pay\u00a0Margot \u00a31,000 a week for her services for the ten weeks the play will run.\u00a0 To avoid complicating matters, we will assume that this is Margot\u2019s only source of income in 2014\/15.<\/em><\/p>\n A cash advantage<\/em><\/strong><\/p>\n Under the old rules, GJ Theatre Productions would have been required to deduct Class 1 National Insurance contributions (NICs) from payments to Margot.\u00a0 Therefore, for every weekly payment of \u00a31,000 Margot would have received \u00a3918 into her bank account.\u00a0 From 6 April 2014\u00a0Margot will receive the full \u00a31,000, meaning an extra \u00a382 in her pocket every week, or an additional \u00a3821 by the end of the play\u2019s ten week run.<\/p>\n However, under the old rules,\u00a0Margot would have been able to claim credit for the Class 1 NICs deducted from the payments.\u00a0 This would effectively cancel out any requirement to pay Class 4 NICs on this income.<\/p>\n Going forward,\u00a0Margot will instead pay Class 4 NICs on the profit from her self-employment although she will benefit from the fact that Class 4 NICs are set at a lower rate than Class 1 NICs.<\/p>\n In addition to Class 4 NICs, self-employed individuals pay Class 2 NICs.\u00a0 Under the old rules\u00a0Margot would have been eligible to apply for an exception from Class 2 NICs.\u00a0 This option is no longer available to her, and she will be required to pay Class 2 NICs at a weekly rate of \u00a32.75 from 6 April 2014.<\/p>\n Despite the requirement to pay Class 2 and Class 4 NICs, at the end of the year\u00a0Margot will still be \u00a3494 better off as a result of the simplification of the National Insurance Regulations.\u00a0<\/strong><\/p>\n An unexpected liability<\/em><\/strong><\/p>\n Margot will pay her Class 4 NICs at the same time that she pays any income tax due under Self Assessment \u2013 31 January 2016 for the 2014\/15 tax year.\u00a0 The concern is that\u00a0Margot may not have anticipated this new liability.<\/p>\n This issue is more pronounced if we increase the amounts\u00a0Margot receives in 2014\/15 to \u00a310,000 a week for the 10 week run.<\/p>\n Margot\u00a0is now required to make payments on account for the 2015\/16 tax year.\u00a0 Each payment on account is 50% of the previous year\u2019s income tax liability and<\/strong> Class 4 NICs.<\/p>\n This means that by 31 January 2016 Margot will have to pay Class 4 NICs of \u00a34,214 for 2014\/15, plus half this amount again as a payment on account for 2015\/16.\u00a0 A total amount of \u00a36,321.\u00a0Margot may not have set aside the funds to meet this liability in full.<\/strong><\/p>\n Inability to claim social security benefits<\/em><\/strong><\/p>\n While the old system may have been flawed, it did entitle\u00a0Margot to claim National Insurance benefits such as Statutory Sick Pay, Statutory Paternity\/Maternity Pay and contributions-based Jobseeker\u2019s Allowance.\u00a0From 6 April 2014 this will no longer be the case.<\/strong><\/p>\n In addition, her changed status for National Insurance purposes may result in Margot losing out on Universal Credit.<\/p>\n Conclusion<\/em><\/strong><\/p>\n Entertainers will undoubtedly benefit financially from these rule changes.\u00a0 Whether the financial benefit is adequate compensation for the loss of entitlement to social security benefits and increased year-end tax bills, only time will tell.<\/p>\n If you think you could be one of those affected by this change in rules then please contact me.<\/p>\n","protected":false},"excerpt":{"rendered":" This time last year I blogged explaining the complex National Insurance rules for entertainers and how their application could result in overpaid National Insurance. In a year much has changed:\u00a0 recognising the existing rules were difficult to implement, last May HM Revenue & Customs (HMRC) opened a consultation on simplification.\u00a0 Of the nearly 12,000 responses[…] <\/p>\n