The Upper Tribunal in this case was asked to review the status of entertainers/actors engaged by the taxpayer under a variety of contracts for the purposes of National Insurance contributions (NICs).

The taxpayer sought a decision in principle as to whether payments to actors included any ‘salary’ as defined in the relevant legislation (effective from 6 April 2003) with the decision becoming widely available in February.

Background

ITV Services Limited appealed against determinations by HMRC that certain entertainers were to be treated as employed earners giving rise to liability on the company to pay secondary Class 1 NICs in respect of the earnings of those entertainers.

From 6 April 2003, the effect of the change to the NIC Regulations was that if any part of the remuneration in respect of their engagement qualified as ‘salary’ as defined, the actor would be treated as having employee status in respect of that engagement.

The First Tier-Tribunal had already accepted HMRC's submissions to the effect that the relevant payments to actors which were in issue qualified as ‘salary’ as defined in the Regulations. The taxpayer appealed. The Upper Tribunal was asked to consider the issue in principle on appeal by reference to a number of different contractual arrangements.

The specific issues addressed in the appeal were as follows:-

1. Whether the legislation required the status of an individual actor in relation to payments received under a contract for services, as either a self-employed person or a person deemed under the relevant legislative provision to be employed by the taxpayer, to be determined at the outset of the engagement (as HMRC contended and ITV disputed);
2. Whether the concept of ‘salary’ as used in the legislation was generic and forward-looking, focusing on the type of payment contemplated under the contract (as HMRC contended), or required separate consideration of each specific payment as and when it was made (as ITV contended); and
3. Whether the legislative concept of ‘salary’ simply required consideration of the contract terms themselves (as HMRC contended), or whether it was relevant to inquire into the negotiations leading to agreement on those terms (as ITV contended).

Decision

The Upper Tribunal dismissed the taxpayer's appeal.

The definition of ‘salary’ in the Regulations was intended to be forward-looking. The question whether the legislation required the status of an individual actor in relation to payments received under a contract for services, as either a self-employed person or a person deemed under the relevant legislative provision to be employed by the taxpayer, was to be determined at the outset of the engagement.

In addition, the concept of ‘salary’ as used in the legislation was generic and forward-looking; focusing on the type of payments contemplated under the contract, and did not contemplate or require separate consideration of each specific payment as and when it was made.

The provision whereby actors were deemed in certain circumstances to have the status of employees for the purposes of the NICs regime was inserted into a well-established/well-understood system for payment of NICs, under which the employer was required to make the relevant deductions for primary Class 1 NICs from the employee's remuneration as it was paid.

That constituted a pre-existing statutory context, constituting a fundamental feature of the general NICs regime, which was of considerable importance when it came to interpreting the relevant provisions of the Categorisation Regulations in relation to actors.

The definition of ‘salary’ required a forward looking, contract based approach to be applied, in order to answer the question whether a number of payments were payable at a specific period or interval.

That feature of the definition married up with the natural contract-based interpretation of the notion of remuneration. Moreover, HMRC's Tax Bulletin of June 2003 indicated that the intention was to expand welfare protection, by expanding the application of Class 1 NICs to cover the majority of entertainers.

The Tax Bulletin thus indicated that an expansive approach to the concept of remuneration including salary was intended to apply, in order to fulfil the object of applying the Class 1 NICs regime to the majority of actors.

In all the circumstances, the legislative concept of salary simply required consideration of the contract terms themselves; and in deciding how the Regulations applied it was not relevant to inquire into the negotiations leading to agreement on those terms. The First Tier-Tribunal had correctly identified the principles to be applied and the taxpayer's appeal, based as it was on a challenge to those principles, fell to be dismissed.

The full text of the decision is available at:-http://www.bailii.org/uk/cases/UKUT/TCC/2012/47.html