Are Cruise Ship Entertainers Employees?

afro american jazz pianist

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 [2011] 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).

No more Class 1NI for Self Employed Entertainers


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

HMRC reconsider the NI status of self employed entertainers


On the 15th May HMRC issued a consultation document ‘National Insurance and Self-employed Entertainers‘ comments are invited until 6th August 2013. The object of the consultation is to simplify National Insurance for Entertainers and for the recommendations to be rolled out from 6th April 2014.

The consultation is relevant to:

  • Actors
  • Singers
  • Musicians
  • Performers

Its not relevant to individual employed under a ‘contract of service’ as they are employed.

Since 1998 self employed entertainers have been deemed to be employed earners for National Insurance purposes in order that they could access earnings related contributory benefits. This requires contributions from the entertainer and secondary contributions from the producer of the entertainment.

But its complicated because entertainers often receive ‘additional use payments’ such as royalties, the payments can be complex and paid years after the original engagement.

In addition there is evidence that the 13.8% employers NI has made some producers look outside of the UK for entertainers.

Some amendments to the rules were made in 2003 replacing the ‘wholly or mainly by way of salary’ with a revised definition of ‘salary’

“Salary“means payments:

(a) made for services rendered;

(b) paid under a contract for services;

(c) where there is more than one payment, payable at a specific period or interval;


(d) computed by reference to the amount of time for which work has been performed.


But this hasn’t help, computed by reference to time is too broad and entertainers don’t work on this basis.

So far HMRC have sought the views of groups representing 80,000 entertainers and 23,000 engagers.

Currently there are two options within the Class 1 regime for amending legislation which HMRC believe would simplify the NICs treatment of entertainers’ earnings:

  • Option 1: Provide for separate secondary contributors for NICs due on Initial Performance Payments (IPPs) and NICs due on Additional Use Payments (AUPs);


  • Option 2: Provide that IPPs are subject to Class 1 NICs, but AUPs are subject to Class 4 NICs

Alternatively all of the entertainers earnings could be moved into class 2 and class 4 NI.

Do you have any suggestions for HMRC?

How Troncmasters can keep your tips NI and VAT Free

Tip jar

If your employees receive tips directly from your customers and are allowed to keep them, then you do not need to do anything for PAYE tax or NICs. There are no NICs due on the money, and the tax due is the employee’s responsibility. Your employees should declare the money to HMRC, who will usually adjust their tax code to collect any tax due.

A tronc is an arrangement for pooling and distributing tips and service charges and the person who operates the tronc is known as a troncmaster. If your employees use a tronc you must tell HMRC who the troncmaster is so that they can set up a PAYE scheme for the tronc.

Tips are outside the scope of VAT when genuinely freely given. This is so regardless of whether:

• the customer requires the amount to be included on the bill
• payment is made by cheque or credit/debit card
• or not the amount is passed to employees.

Restaurant service charges are part of the consideration for the underlying supply of the meals if customers are required to pay them and are therefore
standard rated.
If customers have a genuine option as to whether to pay the service charges, it is accepted that they are not consideration (even if the amounts appear on the invoice) and therefore fall outside the scope of VAT.
Further information is available from: Notices 700 The VAT guide and 709/1 Catering and takeaway food