The UK’s income tax system needs to better recognise the freelance nature of work in the creative sector, and the government should signal how it will acknowledge and respond to the issue.
The recommendation, published in Support for the Creative Industries, is one of a set on the creative sector made by the Parliamentary Select Committee, which features MPs from the three main political parties.
It came after the committee heard that freelancers – the chosen status of most creative people – often encounter tax-induced problems, which the current income regime is ill-suited to address.
In particular, explained the chief executive of Directors UK, Andrew Chowns, in his evidence to the committee, freelance film directors come up against HM Revenue & Customs’ ‘nine-month rule.’
Set out in the HMRC Film Industry Tax Guidelines, this rule dictates that any freelance worker in the film and TV industries whose contract ends beyond nine months is deemed by to have PAYE tax status.
Producers and broadcasters, said Mr Chowns, are therefore forced to limit contracts to a maximum of nine months, even if the project has a natural life of one year, meaning workers, including directors, have to take an “artificial” period of unemployment.
He said the rule also has an impact on freelancers who are hired independently on different projects, headed up by different production teams, but for the same umbrella employer, such as the BBC or a large independent production firm. His evidence states:
“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 some revisions to the rule from the taxman have provided greater flexibility, it is still “confusing to both employers and freelancers alike,” and should no longer apply to freelancers working in film and TV.
Asked whether removing the rule would encourage people to just become self-employed as a “bit of a tax fiddle,” Mr Chowns argued such an impact was unlikely, not least because most in the industry already are self-employed freelancers.
He explained: “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.”
Having heard that freelance artists, whose assignments are short with atypical working hours, also find the income tax system problematic, the committee has called on the government to respond.
It said: “We do not doubt that some aspects of the income tax system adversely affect creative individuals.
“These arise from the intrinsically freelance nature of the vast majority of creators and authors. The personal tax system could better allow for periods when individuals are not being paid, but are nonetheless creatively engaged.”
As a result, the MPs want ministers to acknowledge the issue and respond, ideally in the shape of reforms to the income tax and tax reliefs systems to “adequately recognise the freelance nature of much creative work.”