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Case Report: ITV Services Limited v R & C Commissioners [2013] EWCA Civ 867

Court of Appeal (Civil Division)

Decision released 23 July 2013

NATIONAL INSURANCE - Meaning of new paragraph 5A inserted in 2003 into Social Security (Categorisation of Earners) (Amendments) Regulations 1998 (SI 1998/1728) – whether a fixed payment to an actor to be available for work over extended periods was remuneration within para 5A (d) ‘computed by reference to the amount of time that work has been performed’ –– whether a contingent obligation at a daily rate falls within 5A(d) even though no payment received – whether fixed fee agreement incorporating standard Equity PACT agreement which provides for minimum daily rates brings an agreement within para 5A(d)

  The court dismissed an appeal by the taxpayers that contracts of key talent TV actors should not be subject to NICs.

Summary

  A 2003 amendment to paragraph 5A of the Social Security (Categorisation of Earners) (Amendments) Regulations 1998 (SI 1998/1728) brought all actors within the charge to NICs unless their remuneration ‘does not include any payment by way of salary’.

  Salary for these purposes was defined in paragraph 5A(a) as being ‘made for services rendered’ and in 5A(d) as ‘computed by reference to the amount of time for which work was performed’

  The court considered a series of specimen contracts for different kinds of actors.

  HMRC and ITV Services were agreed that the NICs status of actors’ agreements needed to be judged in a forward-looking way, irrespective of actual hours worked. In the case of stunt men, or walk-on actors who were paid by a daily rate, the requirement of an element of pay being calculated by reference to time during which work was performed was met. So these were within the scope of NICs. They were also agreed that All Rights agreements for voiceovers that referred merely to a fee for a piece of work without reference to time fell outside the scope of NICs.

  The problem arose over ‘key talent actors’ who received a package of substantial pay partly for the rights in their work and partly for making themselves available for filming over extended weeks or months, during a lot of which they would not be on set. The question was whether their fee was then computed by reference to the amount of time for which work was performed. The FTT (ITV Services Ltd [2011] TC 00836) and UTT (ITV Services Ltd v Revenue & Customs Commissioners [2012] BTC 1,561) had equated the requirement in paragraph 5A(d) with that in 5A(a), and so interpreted computation by time for which work was performed simply to mean being paid for rendering services. Rimer LJ disagreed. Where an actor was paid a daily rate and allowed to go home after half a day, his pay was computed by time. But where he was paid to be available simply when called over an extended period and allowed to stay at home for weeks, he was not working when at home, and so the payment could not be by reference to the amount of time for which work was performed. There was therefore a distinction between walk-on parts and key talent. Munby and Burnton LJJ found the statutory language too unclear to be confident of an intended distinction between ‘services rendered’ and ‘work performed’ in paragraphs 5A(a) and 5A(d) and so reserved their opinion on this point.

  But the court was unanimous that key talent actors were brought within the charge to NICs by two other aspects of the series of specimen agreements it was shown.

  Firstly, they all included a contingent obligation for key talent to appear if required at a fixed rate for special daily or hourly sessions of extra work such as photography or voiceovers. Because these contracts must be judged in a forward-looking way, it was irrelevant whether the extra sessions were ever required. Otherwise the NICs status of actors could change retrospectively.

  Secondly, the contracts of key talent would incorporate the standard PACT agreement negotiated with the actors’ union Equity. This was aimed at walk-on actors and provided for certain fixed rates of pay for the first and subsequent days of work on TV productions. The key talent agreements would normally provide that substantial fees payable included the obligations to pay the standard daily rates in the PACT agreement. They therefore contained an element of pay computed by reference to time worked. Only where the agreements made it clear that the key talent fee was in substitution for the fixed rates under the PACT agreement did they not fall under paragraph 5A(d) of the regulations.

Comment

  Freelance actors were originally brought within the scope of NICs by the Social Security (Categorisation of Earners) (Amendments) Regulations 1998. These covered all actors except those whose remuneration does not consist wholly or mainly of salary. Over time, this rule allowed most actors to escape NICs as their pay consisted increasingly of rights payments. Para 5A was therefore inserted in 2003 to exclude only those actors whose pay ‘does not include any payment by way of salary’.

  The changed wording was explained in HMRC Tax Bulletin June 2003 (Issue 65) as follows:

‘This means that the policy intention of ensuring that the regulations apply to film extras and walk-on parts is achieved. The last bullet point [referring to para 5A(d)] ensures that key talent artistes are excluded as they will be contracted to appear in productions for which their remuneration is not directly calculated according to the period of weeks or months they are assigned to the production.’

  It is perhaps unfortunate that HMRC found it necessary to argue against its own guidance on the basis of standard clauses in key talent artists’ contracts that contain minor contingent obligations or make it clear that the minimal PACT obligations for walk-on actors are also in key artists’ fees often running into the millions. The court acknowledged that it was the walk-on actors who were most in need of the extra benefits provided by Class 1 contributions.