03 Feb What is the future of loan out agreements for Film and Media within the new IR35 landscape?
The impact of IR35
From 6 April 2021 (delayed from April 2020) IR35 rules applying to a personal service company (PSC) as managed service companies moves the responsibility from the service company to the organisation receiving the individual’s services .
IR35 was introduced to legislate against individuals using a Limited Company structure or similar to avoid being paid via payroll and the subsequent taxation. Such Companies often pay their shareholders in dividends rather than via a payroll and this form of payment can effectively side-step PAYE and National Insurance deductions, ultimately reducing the individual’s deductions from income. Some people describe such Companies as “loan out” Companies.
Currently, it is the loan-out company that is responsible for assessing and making payment of income tax and National Insurance contributions (NICs) for the services being provided by individuals.
The Government’s reforms for private sector companies are intended to improve compliance with the existing rules by moving the responsibility for tax assessment and payment from the contractor to the end client. What this then means in the film and Media context, is that 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. This revised approach follows similar measures introduced in the public sector in 2017.
This change will only affect large and medium size businesses, meaning that producers which fall into the category of a ‘small business’ will not be affected by the new provisions. However, it is not yet known how a ‘small business’ will be defined and what criteria will be applied to any assessment as to business size.
What this means for production companies?
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 simply err on the side of caution and place all individuals as employees on their payroll.
What this means 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. The increased costs for employers may result in production companies seeking to reduce the fees paid to individuals.
Individuals may also explore IR35 complaint payment solutions, such as using “umbrella” companies, to determine what makes the most financial sense for them.
What can be done in the interim?
Prior to the commencement of the rules on 6th April 2021, it may also be prudent for production companies to ensure that their contracts with loan-out companies include suitable provisions which would allow them to make any deductions required by law from payments due to loan out companies.
How Aquitas can help you
Aquitas Law’s Film and Media team can assist in you in finding the solution that is best suited for the needs of your business.
Call us on 0207 099 4444 or email us @ enquiries@aquitaslaw.com