The IR35 Labyrinth: The tax implications for actors

The IR35 Labyrinth: The tax implications for actors Alex Robertson June 24, 2024

For actors, the allure of the stage and screen is often accompanied by the complexities of freelance life. While the freedom to choose projects and manage your schedule holds immense appeal, navigating the tax landscape can be a daunting task. IR35, a set of rules designed to ensure individuals genuinely working as contractors pay the appropriate tax, adds another layer of confusion. 

There’s pitfalls, and mitigations:

The core challenge with IR35 lies in the potential for misclassification. Actors are often employed through limited companies or agencies. However, HMRC might scrutinise the working relationship and determine it closely resembles employment. This can have severe consequences, resulting in unexpected tax bills for income tax and National Insurance Contributions (NICs).

The ambiguity surrounding IR35 stems from the factors used to assess employment versus self-employment. IR35 looks at elements like control, mutuality of obligation (a guaranteed income for the actor and a guaranteed service for the production), and the right of substitution (the ability for the production to use another actor). 

Unfortunately, the nature of acting work often presents a grey area. Actors might have limited control over rehearsals or specific aspects of the performance, and short-term contracts can make it difficult to demonstrate a lasting “mutuality of obligation.”

One of the most concerning aspects of IR35 for actors is the potential for retroactive tax assessments. If HMRC decides you fall within IR35 after the fact, you might be liable for backdated income tax and NICs, along with penalties. This can be a significant financial blow, especially for actors with fluctuating income streams.

The lack of clarity around IR35 makes it challenging to plan and budget effectively. Actors might find themselves in a precarious position, unsure of their IR35 status and potentially facing a hefty tax bill down the line.

The freelance nature of acting, characterised by short contracts and impermanent engagements, can further complicate matters under IR35. HMRC might view this work pattern as less indicative of a self-employed business structure compared to a more traditional fixed-office profession. The limited control actors often have over working conditions can also weaken their arguments for being genuinely self-employed.

Fortunately, there are steps actors can take to navigate the IR35 labyrinth and minimise the risks of misclassification. 

Obviously, we would say this, but as accountants specialising in the entertainment industry, we can provide tailored advice based on your specific circumstances and help you understand your IR35 status.

The first step lies in having clear and well-drafted contracts. These should emphasise your autonomy, business structure, and the right to substitute yourself for certain roles (if applicable). A strong contract can be a valuable asset if your IR35 status is ever challenged.

While not a foolproof solution, operating through a properly structured limited company can demonstrate a business-like approach. This structure separates your personal finances from your acting income and showcases a commitment to running your acting career as a business.

Of course, maintaining meticulous records of income, expenses, and business activities is vital for any potential IR35 assessment. Having clear documentation strengthens your case for self-employment and simplifies the process if you’re ever audited.

A proactive approach to IR35 can minimise the risks and ensure you’re putting your best foot forward when it comes to tax time. So, get in touch so that we can make sure everything is in place and you can concentrate on the interesting stuff.