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HMRC internal manual

Employment Status Manual

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HM Revenue & Customs
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Particular occupations: entertainers - NICs treatment (from 6 April 2003 to 5 April 2014)

SS (Categorisation of Earners) Regulations 1978 (SI 1978 No.1689) Regulation 1(2), paragraph 5A in Part I of Schedule 1, and paragraph 10 in Schedule 3

SS (Categorisation of Earners) (Amendment) Regulations 2003 (SI 2003 No. 736)

Following the introduction of the 1998 regulations described in ESM4145, it became apparent that they were no longer sustainable. The legislation was intended to ensure that the majority of entertainers who paid Class 1 NICs prior to 1998 continued to do so. Prior to 1998, ‘Key talent’ stars did not normally pay Class 1 NICs and it was intended that this would be the only group which would be excepted from liability for Class 1 NICs provided they were not engaged on terms which enabled their remuneration to satisfy the definition of ‘salary’ at ESM4146. However, it is common practice for the majority of entertainers to enter into contracts which provide for residuals and royalty payments as part of their remuneration which exceeds the basic salary element. Very few entertainers’ earnings, therefore, consisted ‘wholly or mainly’ of salary, and the regulations did not achieve the object of bringing most entertainers into employed earners employment.

New regulations were introduced from 6 April 2003 which, instead of the ‘wholly or mainly’ salary criteria, ensured that an entertainer who receives any salary element in his remuneration would be treated as an employed earner for NICs purposes. Once subject to the regulations there will be a liability for Class 1 NICs on all earnings from the engagement (including residuals and royalty payments.)

A new definition of salary was included in the regulations in which the following four out of the five tests used to define salary described at ESM4146 needed to be satisfied:

  • made for services rendered;
  • paid under a contract for services;
  • where there is more than one payment, payable at a specified period or interval; and
  • computed by reference to the amount of time for which work has been performed.

The third bullet by implication also included entertainers engaged on single day or two day engagements. The last bullet ensured that Key talent artistes were excluded from the regulations as they were contracted to appear in productions for which their remuneration was not directly calculated according to the period of weeks or months they were assigned to the production.

The regulations also included provisions which amended paragraph 10 of Schedule 3 to the principal regulations, which ensured that where an entertainer is engaged through a third party (such as an agency), the secondary contributor is the producer of the entertainment in respect of which the payments of salary are made.

Engagers who had paid secondary Class 1 NICs were entitled to claim refunds on the basis that self-employment was the correct status for NICs purposes and that NICs paid between 17 July 1998 and 5 April 2003 were paid in error. If enquiries are received about individual refund claims for this period, you should refer them to:

NIC&EO Refunds Group
Room BP1001
Benton Park View
Newcastle Upon Tyne
NE98 1ZZ