If they weren’t on cruise ships HMRC would probably argue that they were employees but in the case of cruise ships they argue the opposite.
Pete Matthews (1) Keith Sidwick (2) v Revenue & Customs  UKFTT 24 (TC)
Mr Sidwick was a musician and played piano on a series of cruise ships. Mr Matthews was a juggler, similarly entertaining passengers on cruise ships. Both were subject to a close degree of control by the ships officers but the First-tier Tribunal found that this degree of control was required by the context of a cruise ship.
The First-tier Tribunal concluded that the entertainers were not employees ‘…but earn their living by entering into a series of separate engagements with a number of different cruise lines in a similar way to actors…’
The reason why HMRC argued against employment was to stop a claim for Seafarers Earnings Deductions.
To get the deduction you must:
- work on a ship. Oil rigs and other offshore installations aren’t ships for the purposes of Seafarers’ Earnings Deduction – but cargo vessels, tankers, cruise liners and passenger vessels are
- work all or part of the time outside the UK. This means that for each employment you must carry out duties on at least one voyage per year that begins or ends at a foreign port
- be resident in the UK or resident for tax purposes in a European Economic Area (EEA) State (other than the UK) – find out more by following the link ‘Check your residence status’ in the section below
You get the deduction from your earnings as a seafarer if you have an ‘eligible period’ of at least 365 days that consists mainly of days when you are absent from the UK.
From 6 April 2013 the rules that determine if someone is resident in the UK for tax purposes have been put on a statutory basis. These rules are known as the Statutory Residence Test (SRT).
Following 18 months of extensive engagement with representatives from all fields of the entertainment industry, HMRC published on 15 May 2013 a public consultation document: ‘National Insurance and Self-Employed Entertainers’, which discussed the precise difficulties being caused by the current application of the Regulations. The consultation presented four possible options for simplifying the NICs treatment of entertainers going forwards.
The consultation ran for 12 weeks receiving 11,814 individual responses of which 99.1% supported the option of repealing the Social Security (Categorisation of Earners) Regulations in relation to the entertainers. On 23 October 2013 HMRC published a summary of the consultation responses which included the announcement of the Government’s decision to repeal these Regulations insofar as they relate to entertainers from 6 April 2014 and a first draft of the legislation implementing this.
From 6 April 2014, producers engaging entertainment performance services will not be required to deduct Class 1 NICs contributions from any payments they make to you. This includes additional use payments such as royalties. The engager will make payments to the entertainer gross of tax and NICs and the entertainer must declare these earnings as part of their normal self-employed Self-Assessment return.
Please note that this guidance does not apply if you are an entertainer on an employment contract, and receive a regular salary from your engager with tax and NICs deducted at source under the Pay As You Earn (PAYE) system.
If you engage the services of entertainers
From 6 April 2014, you will not be required to operate Class 1 NICs for the entertainers you engage. If you are currently deducting employees’ Class 1 NICs from the payments you make to your entertainers (including additional use payments such as royalties), and paying the respective employers’ Class 1 NICs on these payments, you should continue to do so up until 5 April 2014. From 6 April 2014 however you should cease to do this.
The changes will be of interest to all national broadcasters, film companies, theatre managers, independent production companies, their representative bodies and agents in the Film & TV Production Industries, Equity, individual entertainers, companies engaging entertainers, and any other interested parties.
See HMRC Brief 35/13 for more details