The dangers of using a personal service company (PSC)
In a well-publicised case, actor Robert Glenister recently found himself at the end of a lengthy battle with the taxman. In March, after nine years of legal wrangling, an Appeal court upheld a tax tribunal ruling and Robert lost the case. As a result, he’s been presented with a hefty bill for £147,000 plus interest – which, he claims, could lead to him having to sell his home.
But how did this situation arise, and what implications could it have for other people in the entertainment industry? Robert, star of Spooks, Hustle and many other TV programmes, formed a personal service company (PSC) called Big Bad Wolff in 2004.
A PSC is basically a limited company, usually with a sole director (the ’contractor’), that supplies professional services to clients. This has enabled actors and presenters to offer their services through the company as a way of paying less tax and National Insurance, as they could be regarded as ‘off-payroll’ rather than as employees.
‘Slipping through my fingers’
However, HMRC has started clamping down on PSCs, in a move described by Equity as a co-ordinated attack on actors. In the Glenister case, HMRC claimed that employment intermediary rules (IR35) should have been applied to the PSC, which meant that any engagement fees should have been treated as ‘employment income’. This in turn would have affected the tax and National Insurance contributions that should have been paid.
Although HMRC conceded that Robert Glenister hadn’t been guilty of tax avoidance, the tax tribunal said that he had effectively been working as an employed earner. He was therefore liable to pay National Insurance contributions for the period between 2004 and 2014. Robert said that Big Bad Wolff had been set up in good faith. He hadn’t been contacted about the possible discrepancies by HMRC until 2010 and feels that it’s unfair that the National Insurance payments have been backdated to 2004.
‘The winner takes it all’
Although PSCs have been regarded as an acceptable way of reducing tax bills in the past, HMRC believes that they are acting as ‘disguised remuneration’. It now recommends that those involved in such a scheme should ‘withdraw from it and settle their tax affairs’. The recent ruling means that PSCs are likely to be a less tax-efficient solution in the future.
Equity is afraid that the ruling will also mean that many other actors who have been using PSCs will now be pursued rigorously by the taxman. As a result, The Stage claims that: “Hundreds of high-profile actors face crippling retrospective tax bills and risk ‘losing their homes’”.
So, these are potentially perilous times for actors – and if you’re involved in a PSC, it would make sense to seek professional advice as soon as possible. At The Showbiz Accountant, we can help you to negotiate the HMRC minefield and advise you on the latest regulations and the best course of action to take.