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Low-earning actors ‘most at risk’ from HMRC tax reforms

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Low-earning performers who are not in regular work will be most at risk of losing out on benefits under tax reforms that reclassify entertainers for National Insurance purposes, it has been claimed.

Following a government decision this month, as of April 2014, entertainers will have a change of status – from being employed to self-employed – for NI contributions.

This will alter how much jobseeker’s allowance and other benefits they can apply for, which has led some accountancy firms to claim performers will receive reduced amounts.

Currently, actors, singers, musicians and other performers are categorised as employed for NIC purposes, meaning they qualify to pay class 1 NICs and are then eligible for benefits based on how much they have paid into the system.

For other tax purposes they have self-employed status, which means money is not deducted at source from income, and can therefore claim back expenses against their earnings.

In a document published by HM Revenue and Customs last week, the government confirmed that it would put an end to this dual status. From April, entertainers who are not on a contract of service will be treated as self-employed for NICs, meaning they will pay class 2 and class 4 NICs.

This change will see performers become eligible for means-tested job­seeker’s allowance – a type of benefit that falls under the government’s new, single-payment benefits system, called Universal Credit.

Within this system, benefits will be calculated based on the assumption that self-employed earners will generate at least around £11,000 per year. This amount, called the minimum income floor, will then be deducted from a Universal Credit claim. According to a 2006 survey by Equity and Skillset, more than half of all actors earn less than £6,000 a year from performing work.

Aaron Malins, a senior accountant at ClearSky Accounting, said: “Some entertainers don’t have that kind of income. Some are very successful and make a lot of money, but some don’t. So they will be assessed as having income that they possibly don’t have, which could reduce their entitlement to Universal Credit.”

He added: “This will mainly affect people who have periods out of work and who actually have to use jobseeker’s allowance to support themselves. Those performers who are earning less than the minimum income floor will be most at risk under the proposals for Universal Credit.”

Dave Morrison, a partner at accountancy firm Nyman Libson Paul, said performers with savings could also be at risk due to means-testing. “If you’ve got lots of savings then you will get less benefits as well, but the HMRC’s argument is that if you have these savings then you won’t need Universal Credit,” he said.

However, he added, the reforms will leave producers and some performers better off. Producers, who currently pay on average a 13.8% contribution of their employees’ earnings to the HMRC, will now pay nothing.

Meanwhile, entertainers in regular work should save a marginal amount of money because their standard rate of NIC will be 9%, plus a weekly flat rate of £2.70, instead of the current rate, usually 12% of earnings.

The government response to the consultation revealed that more than 99% of the 11,700 respondents agreed to the changes, which will be introduced from April 6, 2014. Of the respondents, 7,613 were musicians, 2,636 were producers and only 552 were actors.

Equity said it would be speaking to employers about how they can use their “windfall”, and that more jobs and better pay would be at the top of its agenda.

A spokesman for the union said: “Over the years, Equity has argued for performers to have dual status for tax and NI so that they can claim allowable expenses against tax and pay into the class 1 NI pot in order to draw down benefits. But, increasingly, their rights to benefits have been eroded and will be further restricted under Universal Credit.

“We will be monitoring the ending of dual status carefully. HMRC has assured Equity that it has never been its intention to reduce performers’ access to benefits, and we will be putting that to the test,” he added.

Meanwhile, the Musicians’ Union has welcomed the decision, calling it “fantastic news”. It lobbied in support of the changes because it claimed the current system deterred foreign companies from working with musicians in the UK due to the additional financial burden of paying the employer’s NIC.

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