Income tax system 'ill-suited to freelance creatives

The Parliamentary Select Committee of MPs from across the three main political parties has published a recommendation in Support for the Creative Industries that the freelance nature of creative employment should be better recognised in the UK (http://www.sherwincurrid.com) income tax system, and that the government should signal its acknowledgement and response to the problem. It is a development that will interest many creatives making use of a Guildford accountant.

The recommendation was just one of several made by the committee on the creative sector, which heard that tax-induced problems were often encountered by freelancers, of whom so many are creative people. It heard that these issues were not addressed very well by the present income regime. Andrew Chowns, the chief executive of Directors UK, explained in his evidence to the committee how much of an issue HM Revenue & Customs' 'nine-month rule' was for freelance film directors.

The HMRC Film Industry Tax Guidelines state that if a freelance worker in the film and TV industries has a contract ending beyond nine months, they are deemed to have PAYE tax status. However, such workers dependent on a Guildford accountant find that the contracts that they are therefore handed by producers and broadcasters only last for nine months at most, even if the natural life of the project is a year or more. This forces an "artificial" period of unemployment for such workers, including directors.

Mr Chowns added that freelancers hired independently on different projects, with different production teams at the helm but the same umbrella employer, such as a large independent production firm or the BBC, were also adversely affected by the rule. He said: "This measure was originally introduced, we believe, to prevent the avoidance of PAYE by workers who claimed to be self-employed, but in practice now it is having the effect of an additional and unfair penalty on workers who are clearly freelance and have no claim to employed status."

Directors UK added that while greater flexibility had been provided by the taxman making some alterations to the rule, it remained confusing to both employers and freelancers and should no longer be applicable to freelancers working in film and TV. Mr Chowns was asked whether the removal of the rule may result in people simply opting for self-employment as a "bit of a tax fiddle", but played down the likelihood of this, not least on the grounds that self-employed freelance status is already the case for most within the industry.

Doubtless that many a Guildford accountant  and their creative clients would agree with Mr Chowns in declaring that "In my opinion, this tax rule is only having a perverse effect of creating three months' forced unemployment…It would be an easy thing to fix. At the moment it looks like freelance creatives are being discriminated against by this peculiar piece of tax legislation." The committee agreed, too, ultimately calling for an acknowledgement and response to the issue from ministers, ideally in the form of income tax and tax relief reforms.

Editor’s Note: Sherwin Currid (http://www.sherwincurrid.com) are represented by the search engine advertising and digital marketing specialists Jumping Spider Media. Email: info@jumpingspidermedia.co.uk or call: +44 (0)20 3070 1959 / +34 952 783 637.