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Show Business The tax and NIC status of entertainers has caused some arguments over the years. Sometimes they seem to be employees, taxed under PAYE and Class 1 NIC; sometimes they are self-employed, self-assessing and paying Class 4. The Revenue prefer them to be employed - on the highly generous ground that paying Class 1 NIC entitles you to unemployment benefits while you are 'resting'. In 1998, new rules were brought in to make sure that most actors and actresses would pay Class 1 NIC even if they were treated as self-employed for income tax. Well, they were supposed to make sure - it's now become apparent that they didn't catch everyone they were supposed to, and more rules have been put into place from 6 April 2003 to really make sure. This means that some entertainers will have paid Class 1 NIC between 1998 and 2003 when they should not have done, and the Revenue have given them until 5 April 2005 to realise and to ask for it back. That's a tight deadline, but if you are affected, it may be worth dropping other things and dealing with it - there could be a lot of money involved. The NIC liabilities of the individual were capped in all those years, so the repayment to individuals won't be huge - although it could still be a worthwhile amount. It's the 'employers' who should be really interested in this. If they paid large fees and accounted for Class 1 employer contributions, they stand to recover a great deal of money if it can be shown in time that the basis of payment was wrong. If this sounds relevant to you, we will be pleased to look into it for you. The 1998 Categorisation of Earners Regulations treated 'entertainers' as employees, regardless of their true legal status, if they were engaged under standard Equity contracts (which may have the characteristics of an employment contract). This provided them with unemployment benefit while 'resting'. One of the requirements of the 1998 Regulations was that the individual's earnings should consist 'wholly or mainly of salary'. Most actors fell within this category. However, it subsequently became commonplace for actors to receive royalties and repeat fees as part of their remuneration package. The 'wholly or mainly salary' requirement was often not satisfied so there was no Class 1 NIC. Accordingly, the law was further amended from 6 April 2003 to achieve the originally intended result. From that date, the Categorisation Regulations only require an entertainer's remuneration to include any element of salary - the 'wholly or mainly' requirement is removed. Where the payment is only a fee for the production, not a salary - and this would have to be made clear in the contract - the entertainer will remain self-employed for NICs purposes and liable to Class 2 and Class 4 NICs. Once subject to the regulations there is a liability for Class 1 NICs on all earnings from the engagement (including rights payments). The Revenue's guidance note on the change of the rules, and the procedure for claiming back overpayments, can be found at www.inlandrevenue.gov.uk/pdfs/nicrules_ents.pdf.