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Tax and National Insurance

We hope that you will find these notes useful and informative. If you have seen previous versions of these notes you will note that we have made some changes to the layout and format as well as changes to the content necessary as a result of changes to the legislation.
We would be very grateful if you would let us have your views on the Guidance Notes, telling us whether you found them to be useful, any difficulties you encountered and any other comments that you might wish to make about them.
Unfortunately we will not be able to enter into individual correspondence concerning this edition of the notes but we will take your views into consideration when drafting the next edition. Your assistance in this matter is very much appreciated.
Gateshead Riverside Status Unit.
March 1998.

Please send your comments to:
Gateshead Riverside Status Unit,
Floor 12,
Tyne Bridge Tower,
GATESHEAD,
Tyne & Wear
NE8 2DT


ADDITIONAL NOTES FOR GUIDANCE COVERING THE OPERATION OF AND EXCEPTIONS TO PAYE IN RESPECT OF NON-PERMANENT CASUAL AND FREELANCE STAFF.
These notes are intended to help you but should be considered as guidelines only. Please read them in conjunction with the Employers Quick Guide to PAYE and NIC cards ref CWGI: April 1997, and the Employers Further Guide to PAYE and NIC booklet CWG2 (1997).
Please note the term "Film etc Industry" includes film, video, commercials and independent TV production companies, together with firms providing facilities to such companies. It does not include TV broadcasting companies.


1. Operation of Pay As You Earn - PAYE

You should operate PAYE in accordance with the instructions in the "Employers Quick Guide to PAYW (Cards CWGI) and in the "Employers Further Guide to PAYW (Booklet CWG2), subject to the modifications set out in these notes.
Visits to employers are made periodically to ensure that PAYE is being operated correctly. You must maintain and keep the necessary records for inspection upon request.
You should apply PAYE on all payments made to non-permanent casual and freelance staff engaged on terms of employment. This applies whether the payments are made to individuals engaged by, or working for another employer but who may, for instance, have carried out some additional work for you, unless specifically excluded in the following paragraphs.

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2. Exclusions from PAYE

  1. Staff working under specified Schedule D categories or grades (See Appendix 1)
    PAYE need not be applied to non-permanent casual and freelance staff working in the categories shown in Appendix 1. The contractual and working arrangements for these grades have previously been reviewed by the Inland Revenue and we consider that the terms of engagement are such that they will not normally amount to employment.
    When deciding if PAYE is to be applied, it is the type of job that the individual is engaged to do that should be considered even if the worker has also worked in other grades.
    The list does not show each and every grade or category. It only shows grades and categories when PAYE need not be operated.
  2. Where the 7-day rule applies
    This is a special arrangement and you need not apply PAYE where the individual is employed for less than one week, i.e. 6 consecutive days or less. This arrangement only applies to Income Tax Deductions, NOT National Insurance Contributions - See paragraph 12.
    In applying this rule, each engagement has to be considered separately. Do not add together separate engagements and do not operate PAYE retrospectively.
    The 7-day rule should not be applied where:
    The 7-day rule does not mean that income from short engagements is assessable under Schedule D, simply that the tax due is collected directly from the individual worker where it has been applied.

  3. When a Letter of Authority is produced
    The Court of Appeal has suggested that it may be appropriate in certain cases to look beyond the actual terms of engagement to see whether an employment exists. We do not expect employers to make any additional enquiries in these cases and where appropriate these will be made by London Provincial 10 in the more straightforward cases, or by Gateshead Riverside office where the matter is more complicated or where there is a dispute.
    All initial enquiries regarding Employment Status or objections to the operation of PAYE should be made by the individual to London Provincial 10.
    Valid letters are ONLY issued by London Provincial 10 in respect of the Film Industry and by the TV Unit at London Provincial 12 and also London Provincial 22.
    Ignore letters issued by other Tax Offices or by Accountants, as well as Schedule D numbers provided by individuals. These do not necessarily relate to Film Industry income.
    1. General Letters.
      These have been issued by London Provincial 10 to some individuals giving further specific advice on the operation of PAYE on contracts not usually accepted as falling within Appendix 1 (specified Schedule D categories and grades).
    2. Code NT.
      We have reviewed the working pattern of those likely to be affected by the additional factors suggested as relevant by the Court of Appeal.

    Where these additional factors apply, we issue letters suggesting that code NT may be issued in respect of engagements of 7 days or longer. If you are given such a letter you will need to telephone London Provincial 10 on 0191 490 3500 ext. 3622. You will need to have the following information available:
    We will either issue code NT or give additional advice on the operation of PAYE. Remember, ignore letters issued by other Tax Offices or by Accountants.

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3. Form P45

Self-Assessment was introduced in April 1996 and under the new rules you are required to give employees a statement of their income when they leave your employment even if you have not deducted tax because of the 7-day rule. This information is needed to enable the individual to complete their Tax Returns at the end of each year. The following notes explain what you need to do:

If tax has been deducted:
If you have operated PAYE you should fill in the P45 as normal, send part 1 to this office and give parts 1A, 2 and 3 to the employee.

If tax has not been deducted:


4. Payment to Limited Companies and Partnerships for Work Done by Individuals

The Inland Revenue has reviewed many examples of arrangements involving the provision of the services of specified individuals who work for production companies etc where payment for these services is made to a limited company or to a partnership. It is the Revenue's view that many of these arrangements amount to contracts of employment between the production company and the individual so that in general the relationship between the production company and the individual is usually one of employer and employee. In these circumstances you should apply PAYE in the usual way unless the individual qualifies for one of the specific exceptions above.
If you fail to operate PAYE under these circumstances the Inland Revenue may be entitled to recover the PAYE deductible from you.
Where PAYE has not been operated you should submit full details of payments to limited, companies and partnerships on form 46R-1 (see paragraph 11).


5. Building Industry Subcontractors' Certificates

In normal circumstances, the special legislation relating to subcontractors in the Building Industry does not apply in the Film Industry. You should not therefore accept 714 exemption certificates nor operate the SC60 system.

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6. Overseas Productions

Please refer to paragraph 124 of the Employers Further Guide to PAYE & NIC, CWG2. Additional guidance will be given on request.


7. Production Workers from Abroad

How to deal with employees coming into the UK is covered in paragraph 122 of the Employers Further Guide to PAYE & NIC, CWG2.
However, the Schedule D grading list applies to freelance workers from abroad.


8. Payment to Foreign Personalities, Sports Persons, Artistes, Entertainers etc.

Where overseas personalities such as actors, actresses, singers, dancers and sports persons are engaged in a production, you must observe the provisions of Section 555 of the Income & Corporation Taxes Act 1988, which may require you to deduct Withholding Tax.
As soon as you engage an overseas artiste, please contact the following for further information:

Special Compliance Office Birmingham
Foreign Entertainment Unit
2nd Floor, Royal House
Princes Gate
Homer Road
Solihull
West Midlands B91 3SA

Telephone: 0121 606 2861/62/63
Fax No: 0121 606 2865


9. Company Directors' Remuneration

It is important to ensure that PAYE is correctly applied when remunerating your Company Directors. You should consult the Employers Further Guide to PAYE about this. Before making any gross payments to your Company Directors for any 'other work' please cheek with this office.


10. Expenses Payments - from 6 April 1998

Expenses payments comprise all advances or reimbursement of expenses incurred by your employees and all round sum allowances, including subsistence, meals, per diems, mileage and similar out of pocket allowances. (See the Employees Further Guide.)
The new taxation treatment of employee travel and subsistence expenses from 6 April 1998 is explained in Booklet 490 "Employee Travel - A Tax and NICs Guide for Employers". Please refer to this booklet for an explanation of the term "qualifying travelling expenses".
If you are in any doubt whether an expense is a "qualifying travelling expense" please contact this office.
Please read this expenses section in close conjunction with Booklet 490 and also the "Employer's Further Guide to PAYE' and Booklet 480 Expenses and Benefits - A Tax Guide'.

Tax Treatment of Expenses:

  1. All payments or reimbursement of expenses to employees should be included on the deduction document and taxed under PAYE in the usual way, with the exception of payments within paragraphs (b) to (j).
  2. Schedule D grades
    You do not need to deduct tax on expenses paid to individuals in the grades listed in Appendix 1 but full details must be returned on form 46R-1 (see Section 11). The guidance in Booklet 490 does not apply to Schedule D grades.
  3. 7 Day Rule
    Where the 7-day rule applies (see Section 2(b)) expenses may also be paid gross but you must declare all payments on form P38A (see Section 11).
  4. Reimbursement of Expenses
    You do not need to deduct tax from reimbursements of "qualifying travelling expenses" or reimbursements of any other amount (other than qualifying travelling expenses) expended wholly, exclusively and necessarily in the performance of the duties of the employment.
    Please refer to Booklet 490 for guidance on "qualifying travel expenses".
  5. Subsistence Allowance - UK Locations
    1. Meal Allowance
      Where tax relief is available for the cost of an employee's travel, relief is also available for the cost of subsistence that is attributable to that journey. This means that where, based on the guidance in Booklet 490, tax relief is available for the cost of an employee's travel and you are not providing meals, then if as a result of that travel the employee has to pay for a main meal and you are not reimbursing actual costs, you may pay round sum meal allowances without deducting tax if they do not exceed the average extra expense involved.
      Accepted average costs for meals are as follows:
      Breakfast £5.00
      Mid day meals £6.00
      Evening Meals £10.00
      Where payments are higher than these amounts, the excess should be taxed under PAYE as usual unless prior authority has been obtained from LP 10.
    2. Overnight Absence
      In circumstances where an overnight stay is required and tax relief is available for "qualifying travelling expenses" based on the guidance in Booklet 490 and you are not supplying food or accommodation, then payments of up to £60 per night exclusive of any meal allowances, or £81 per 24 hour period to include all meals, may be made without deducting tax.
      If there are exceptional circumstances where it is necessary to book or pay for expensive accommodation, please contact this office in advance with full details.
    3. Personal Incidental Expenses
      Please see the guidance in Chapter 8.2 of Booklet 490 about payment of Personal Incidental Expenses (PIEs).
  6. Subsistence - Overseas Locations
    There are special tax rules for foreign travel and the guidance in Chapter 7 of Booklet 490 should be followed.
    If the cost of living is higher in a foreign location than in the UK and you have to make payments which are higher than those quoted in (e)(i) and (ii) above, you should contact this office in writing for permission not to operate PAYE on the excess. Please provide full details of the overseas location, the payments due and some supporting information on the local costs.
  7. Travelling Expenses - UK Travel
    In circumstances where tax relief is available for "qualifying travelling expenses" based on the guidance in Booklet 490 and you are paying a flat rate mileage allowance for business journeys, you do not need to deduct tax on mileage allowances up to the following amounts:
    Annual Mileage up to 4000 miles:
    Cars: 40p per mile
    Motorcycles up to 125cc: 17p per mile
    Motorcycles over 125cc: 26p per mile

    Annual mileage over 4000 miles:
    Cars: 22.5p per mile
    Motorcycles up to 125cc: 6p per mile
    Motorcycles over 125cc: 9p per mile

    8. If the mileage allowance exceeds the limits stated above, then you should add the excess to the employee's pay and operate PAYE in the usual way. You can, however, ignore small amounts of up to 2p per mile.

    Please note that you do not need to keep mileage records for freelance workers when the engagement is scheduled to last less than 10 weeks.
    There are circumstances where individuals will be entitled to tax relief for expenses incurred that exceed the mileage allowances or reimbursements paid to them. Guidance is available in the tax leaflet IR161 "Tax Relief for Employee's Business Travel" - a copy of which is found at Annex B of Booklet 490.
    If tax relief is not available because the expenses are not "qualifying travelling expenses", the motor mileage allowances and other payments should be taxed in full and entered on the deduction documents.

  8. Travelling Expenses - Overseas Travel
    Please see the guidance in Chapter 7 of Booklet 490. Note that in general relief is available for travelling expenses incurred in the initial journey to and the final journey from overseas locations where these are met by the employer.
  9. Payments to Third Parties
    If you make payments to a third party for the benefit of your employees, for example, if you pay for accommodation in a hotel, the payments should be returned on forms P 11 D unless relief is available based on the guidance in Booklet 490. See also the guidance on benefits in Booklet 480.
    Payments for the benefit of Schedule D grades do not need to be returned on forms P11D.
  10. Authorisation of Non Operation of PAYE on Expenses
    There will be occasions where this office has specifically authorised the non-operation of PAYE in individual cases.
    Please note that the non operation of PAYE can only be authorised by LP 10, If you fail to operate PAYE without authorisation or under any circumstances outside those listed above, you may still receive demands for the PAYE tax which you should have deducted.

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11. Returns of Payments

Details of all payments to individuals in the grades listed in Appendix 1 and to those producing letters giving advice on particular contracts (paragraph 2(c)(i) above) should be returned on form 46M which you should submit immediately after 5 April next or after production is completed, if this occurs first. Each form should show the amounts paid out, including expenses.
In the meantime, information should be kept on file throughout the year to enable you to complete these forms.
The returns and information regarding their completion can be obtained from:

Inland Revenue
Entertainment Information Unit (TIDO)
Ty Glas
Llanishen
Cardiff CF5 SZG

Telephone: 01222 753271 Ext 3825 or 3919

Details of all payments made under the 7-day rule should be returned on form P38A after the year-end.
Details of payments made under the NT procedure should be returned on deduction documents in the usual way.


12. National Insurance Contributions

Where PAYE does not apply to non-permanent casual and freelance staff under Section 2a, 2c and Appendix 1 (Schedule D categories) of these guidelines, the DSS will also accept these individuals as self employed for National Insurance purposes which means they are liable for their own Class 2 NICs. In case of any doubt, please contact your local Contributions Agency office.
DSS legislation does not allow the operation of a system similar to the Inland Revenue's 7-day rule. Unless self-employment can be accepted in accordance with Section 2a, 2c and Appendix 1 of these guidelines, Class 1 NICs will remain due.


13. VAT Information

Customs & Excise, having adopted the Inland Revenue Guidelines in 1988, will now apply from 1 April 1996 the revised Inland Revenue Guidelines outlined above, so that individuals will be liable to register and account for VAT if their income exceeds the prescribed limit or if they have registered on a voluntary basis. The conditions are:

  1. They are engaged in grades regarded as normally assessable under Schedule D.
  2. Individual contracts have been reviewed by the HU and letters of advice issued as in paragraph 2 above.

The Customs & Excise view is that regular working for short periods will be indicative of self-employment status and there may be a potential liability to register. Where the level of remuneration from short period contracts exceeds the threshold for VAT registration, individuals who request a review of status by the Inland Revenue (for short period working) should notify Customs & Excise that they may be liable to register for VAT. They may progress their application with Customs at the outcome of the review. You can find out more about the liability to register for VAT in leaflet 700/1 "Should I be registered for VAT?'
In cases where specific authority has been given not to operate PAYE either by the issue of NT code or under the 7-day rule, the following advice is offered. Individuals who anticipate that their remuneration will exceed the prescribed threshold for VAT registration should notify Customs that they have in mind the requirements to make an application for VAT registration and will do so, if necessary, when they are advised by the Inland Revenue of their employment status for direct tax purposes.
This guidance does not affect the individual's right to make an application for VAT registration, nor the right of appeal to a VAT Tribunal if Customs refuse the application. Any queries on VAT should be addressed to your local Customs & Excise VAT Enquiry Office. You can find details under Customs & Excise in your local phone book.

IF YOU HAVE ANY QUERIES ABOUT PAYE AND THE FILM INDUSTRY, PLEASE CONTACT THIS OFFICE AT THE FOLLOWING ADDRESS:

London Provincial 10
Film Industry Unit
Tyne Bridge Tower
Church Street
Gateshead
Tyne & Wear
NE8 2DT

Telephone: 0191 490 3500
Fax: 0191 490 3501

APPENDIX 1.

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