The Chancellor’s 2018 Budget set in motion changes for those who supply their services through loan-out companies.
Currently, it is the loan-out company which is responsible for assessing and making payment of income tax and National Insurance contributions (NICs) for the services being provided by individuals.
The new proposals in the Budget shift the responsibility from the loan-out company to the business ultimately receiving the services, so, in the film and TV context, a producer engaging the services of an individual would now be responsible for assessing whether that individual should be legally treated as an employee if they were being engaged directly by the producer rather than through the loan-out company and, if so, for accurately deducting income tax and NICs from the individual’s pay.
Importantly, this change will only affect large and medium size businesses, meaning that producers which fall into the category of a ‘small business’ will continue to apply the current rules. Pact has released a statement (£) that it welcomes this distinction, though it is not yet known how a ‘small business’ will be defined.
Impact for producers?
Rather than risk making an incorrect assessment of whether an individual would be an employee if they were being engaged directly, larger producers may prefer to play safe and simply treat all individuals as employees on their pay-roll, rather than as self-employed.
Impact for individuals?
This could mean the end of the loan-out structure, a significant reduction in individuals working in film and TV being deemed ‘self-employed’ and an increase in taxes applied to individuals’ earnings. It remains to be seen whether producers may attempt to off-set their increased tax liabilities by reducing the fees paid to such individuals, though legally businesses cannot off-set their NIC obligations by reducing the employee’s pay.
The rules are not set to take effect until April 2020, but in the short-term it would be prudent for producers to ensure that their contracts with loan-out companies include the right for the producer to make deductions required by law from payments made to loan-out companies.