A Modest ProposalAugust 5, 2013
The problem with actors is that they never know whether they’re going to make any money or not – like a minimum wage worker on a zero hours contract. The work they do is usually significantly more enjoyable and fulfilling than zero hours contract work, and there is the faint but real possibility of making lottery-winner money out of one successful contract. After all, someone has to be Obi Wan and walk away with 2% of the Star Wars gross, even if most of us know our fate is to be the equivalent of the unfortunate stormtrooper who bashed his head on the doorway.
But think about this for a moment. Alec Guiness died in 2000. His estate still receives his 2%. But should the payer deduction National Insurance before they pay it?
Yes, you may boggle. The vexed question of actors, musicians and other entertainers comes up again in the HMRC consultation (which closes tomorrow) on “National Insurance and Self-employed Entertainers“.
What’s it about? Well, actors are usually self employed for income tax purposes… but because they often need to claim benefits in the early stages of their careers when they are between engagements, they are employees for National Insurance purposes, so that they build up sufficient contributions to be able to claim JSA.
But, well, times change. There’s a fundamental question about whether the royalties Sir Alec Guinness’ estate is receiving now from Star Wars is actually income from his engagement on the production (the work of acting itself) or from the intellectual property inherent in his performance. And – not to put too fine a point on it – there’s a growing tendency for films and tv productions to be financed by special purpose vehicles (companies set up just for the duration of the production itself) and for the income stream then to come from various sources like dvd sales and downloads, and there’s an argument that making a cable tv company in Seattle, say, pay a few pence of residuals to an actor in Notting Hill under deduction of NICs is both administratively burdensome and damaging to the UK creative industries’ competitiveness. And since the government has just introduced a tax break for the creative industries, it makes some sort of sense to make sure you’re not giving with one hand and taking away with the other…
Actually it’s rubbish. There are two fundamental difficulties with this consultation: the difficulty of distinguishing between employment and self employment, and the difficulty in having different rules for Income Tax and National Insurance contributions. Instead of faffing about with a piecemeal change like this one, how about doing something radical about simplicity?
So I have a Modest Proposal.
Abolish the differences between employment and self employment.
All of them.
Employment is under PAYE and self employment under SA , and the government couldn’t do without the steady cash flow it gets from PAYE receipts? Easy! Make PAYE a requirement of Limited Company status – if you’re a limited company, you can’t pay anyone – and I mean anyone – without deducting the tax first. If you’re an individual, you don’t have to operate PAYE, you pay any employees gross, full stop.
Expenses are calculated differently for employed and self employed people? Easy! Make them the same. Currently it’s expenses “wholly and exclusively” incurred if you’re self-employed, and “wholly, exclusively and necessarily” if you’re employed. Abolish “necessarily”. But if you work for a company and you are paid under PAYE you won’t have to make a tax return… unless you want to claim expenses. And if you want to claim expenses they’d better be legitimate expenses, because HMRC will have a new squad of auditors who will examine a random selection of PAYE expense claims and you’ll be heavily penalised for, well, taking the piss.
Tax and National Insurance have different rules? Abolish them! Abolish the different rates of National Insurance, and instead decide what National Insurance is for. Does it actually still pay for pensions, maternity pay, unemployment benefits and sickness pay? Fine. Calculate how much that came to in the last tax year, divide that by the amount of employment pay and self employment turnover there was in the last tax year, and multiply by 100. That gives you what percentage NI will be charged at.
Charge the NI rate that will produce the sum you need, and the tax rate that you think you can get away with (where “you” = “the government of the day”)
Employees have different rights from the self employed? Why? If I’m employed by a multinational and a piece of their equipment falls on me, I’ll sue them and (depending on the circumstances) they’ll pay me compensation. If I employ a cleaning lady for a couple of hours and my stepladder breaks under her, she’ll sue me – and my household insurance will cover me (if I read the small print correctly)
Benefits? You get jobseeker’s allowance, to be replaced by universal credit, if you lose a position as an employee, but not if you’re going through a bad patch as a self employed person. Why? (And, if we went with a Citizen’s Income, instead of universal credit, it would be even less of an issue.)
Now wouldn’t THAT be a simplification worth having???
(Here’s what I sent in response to the consultation, if you’re still interested…)
This is an individual’s response and is also published, with commentary, on my blog at http://tiintax.com.
Question 1: Do you agree that current NICs treatment of entertainers under the Social Security (Categorisation of Earners) Regulations 1978 needs to be changed?
I’m not sure about “needs” but I’m willing to accept it would be a positive change. However see my response to question 6 and the blog entry associated with this response: I think a radical simplification of the treatment of employment/self employment would be a more productive use of legislative and policy effort.
Question 2: Do you agree that self-employed entertainers should be removed from the Class 1 NICs regime? Please give reasons for your answer.
Question 3: Do you agree that self-employed entertainers should be placed in the Class 2 and 4 NICs regime?
Question 4: If you answered “Yes” to Question 3, which of the two possible options discussed in this chapter do you believe should be adopted?
Question 5: Having considered Chapter 9, do you agree that Option 4 should be implemented as the future NICs treatment of entertainers?
I think your proposals seem logical, reasonable and acceptable, but only in the microcosm of considering the position of this particular small group of workers and the detail of this one industry. I think if you were to look more widely at the difference between employment and self employment, and at the same time at a radical simplification of the NI system, it would be a more productive use of policy resources.
Question 6: Do you have any other comments you would like to make about the information contained in this consultation document, or information which you believe is relevant to this consultation?
The coalition government set out its priorities for the tax system as making it simpler, fairer, greener and more competitive. I think that this will make the tax system more complicated rather than simpler, and will not greatly contribute to the other three priorities, and that therefore you should be looking more widely at a more radical simplification, such as abolishing the distinction between employment and unemployment.
Question 7: Do you agree with our assessment of the Taxes impacts of Option 4? If not, please provide evidence for this.
Absolutely not! The whole point of an impact assessment is that it should be a decision-making tool, a way of enabling you to make a rational, evidence-based choice between a number of reasonable options. In this instance you have costed out the benefits of your preferred option but have made no effort whatsoever that I can see to weigh up the costs and benefits of the other options you have put on the table.
Additionally your impact assessment suggests there are no “other impacts” when there will, of course, be a significant impact on a number of small and micro entities – the small firms impact test should be conducted and the evidence weighed of the impact on the smaller end of the market, in accordance with published government guidance, before any final decision is made.