Off-payroll working rules (IR35) for production companies
After a year-long COVID-19 delay, off-payroll working (IR35) reforms will come into effect from 6th April 2021. Under the rules, the responsibility of establishing the tax status of contractors now sits with the end client i.e. the production company or production. The rules might see some individuals who have historically been paid through a personal service or loan out company now subject to PAYE.
Here we are sharing some IR35 essentials production companies, production office and accounts teams might need to consider.
What is IR35?
IR35 refers to the rules which establish the tax status of an individual that is working for a client through an intermediary (for example, a personal service company or loan out company). From 6th April 2021 the responsibility to assess tax status of a contractor will move to the end client, i.e. the production company or production.
If the assessment deems the worker to be employed by the company for tax purposes (by not meeting the requirements of self-employed status), the “fee payer” (the party paying the worked, limited company or other intermediary. The fee-payer will also be the organisation directly above the worker’s limited company in the labour supply chain) is required to deduct income tax and make national insurance contributions via pay as you earn (PAYE) from payments to the contractor.
If this doesn’t happen and is in breach the end client could be liable with HMRC.
Who is exempt?
There are two scenarios where the end client, i.e. the production company or production, is exempt from assessing employment status under IR35:
- For small companies the responsibility still lies with the contractor themselves. A company’s size depends on the size of the client and any parent companies. They are deemed medium or large if 2 or more of the below apply:
- Annual Turnover of more than £10.2m
- Balance Sheet Total of more than £5.1m
- More than 50 employees
2. Employment agencies or umbrella companies where the Contractor is already subject to PAYE and NIC.
How can production companies assess if someone is self-employed?
HMRC provides guidelines around whether someone is probably self-employed and shouldn’t be paid through PAYE if MOST of the following are true:
- They’re in business for themselves, are responsible for the success or failure of their business and can make a loss or a profit;
- They can decide what work they do and when, where or how to do it;
- They can hire someone else to do the work;
- They’re responsible for fixing any unsatisfactory work in their own time;
- Their employer agrees a fixed price for their work — it doesn’t depend on how long the job takes to finish;
- They use their own money to buy business assets, cover running costs, and provide tools and equipment for their work; and
- They can work for more than one client
There are a number of ways in which IR35 assessment tests can take place:
- Referencing against the Self employed roles — HMRC formerly “Appendix 1” list
- Lorimer letter / LP10
- HMRC’s Check Employment Status for Tax (‘CEST’) Online Tool
- Bespoke Assessment (through a specific tax determination tool)
If an employee is PAYE, and there’s no question of them asking to work through a loan out company a status determination statement is not required.
When does the assessment need to happen?
There are a few different scenarios:
- Immediately before the start of the contract once the individual is known.
- For medium or long term contracts, on a regular basis, for example every 6 months.
- And also in the event of a material change to the terms of the contract or of the individual’s circumstances.
What is a Status Determination Statement (SDS)?
A Status Determination Statement (SDS) is the documentation that must be provided to the contractor with a written determination of their tax status post assessment.
- This must be provided to the them before they start work (or before 6 April 2021 if on an existing contract)
- It has to include not only the outcome of the status determination but also the reasons for it
- If there are any agencies between client and the contractor (like an agent), then the SDS has to be provided both to the agency and the contractor
- Status determination has be repeated in order to consider whether working practices change (for example every 6 months) or whenever a new contract begins
The HMRC Employment Status Manual states that companies have an obligation to put in place a ‘client-led status disagreement process’. If the contractor challenges their status determination, a response must be given within 45 days, that either:
- Confirms the original decision (with reasons for it), or
- Provides a new Status Determination Statement, an SDS
Is there a standard SDS template to follow?
There isn’t a set template you must follow. As long as it’s got the decisions you made and the reason for that decision it’s complete. Our dealings with HMRC revealed consistency was key — the same approach across different roles and crew.
What is the end-to-end IR35 process production companies should undertake?
Once an individual is selected for the role:
- Their tax status should be assessed
- If they are to be contracted as a loan out:
- An SDS should be sent
- If there is a dispute, they’ll need to go through the assessment process again
- With an SDS sent again
- Until there is no dispute, and
- The contract can be signed
How can production companies educate the freelancers they work with?
It’s important to continue spreading accurate information as the deadline approaches so production companies and crew can approach these conversations equipped with the correct information. Bodies like Bectu are a good place to turn to for resources.
Want to learn more about IR35 for production and POP’s solution?
Join us and a film & TV tax expert for an intro to IR35, demo of POP’s solution and tax expert live Q&A.
Tuesday 27th April 2021, 11:00AM BST