Advice
IR35: and tax rules for freelancers
HMRC's guidance recognises directors as one of a number of television, film and radio occupations that can generally be treated as self-employed for tax purposes. This is set out in HMRC's specialist Film, Television and Production Industry guidance, which includes a list of recognised freelance roles (historically referred to as "Appendix 1").
However, there are circumstances in which an engager may conclude that a director should be paid through PAYE, with Income Tax and National Insurance deducted at source. This is usually because the engager believes the nature of the engagement means that the individual should be treated as employed for tax purposes under HMRC's employment status rules.
If an employer insists that you must be engaged through payroll, Directors UK members are encouraged to contact us for advice before accepting the arrangement.
Changes to the rules
The way that employment status and "off-payroll working" are assessed changed significantly in 2017 and again in 2021. These reforms shifted much of the responsibility for determining employment status from individual freelancers to the organisations engaging them. Engagers can now face tax liabilities and penalties if they fail to make status determinations correctly.
Before these reforms, HMRC's Film and Television guidance included a widely cited "nine-month rule". In certain circumstances, this meant that workers engaged on a series or programme strand for longer than nine months could no longer be treated as self-employed and had to be paid through payroll. HMRC removed this rule when it revised the industry guidance in 2019/20, and it no longer applies.
How HMRC Assesses Employment Status
HMRC publishes a series of rules and tests that are used to determine whether an individual is genuinely self-employed or should be treated as employed for tax purposes. These assessments consider the reality of the working relationship, rather than simply the wording of a contract.
For directors, the specialist Film and Television guidance remains particularly important. In most cases, freelance directors undertaking discrete production engagements can expect to be treated as self-employed, subject to the specific circumstances of the engagement.
Working as a Sole Trader or Through a Company
Unless they specifically wish to be paid through PAYE, directors will normally invoice for their services and can:
- Work as a self-employed sole trader, paying tax through Self-Assessment; or
- Work through a personal service company (PSC), with tax treatment determined under the rules that apply to limited companies and, where relevant, the off-payroll working (IR35) regime.
- Some directors may expressly wish to work through the payroll (i.e., PAYE) and – if so – should request this.
Directors UK members who are considering operating through a personal service company should seek advice from a qualified accountant or tax adviser. Many of the tax advantages that historically encouraged freelancers to work through limited companies have changed significantly in recent years, and the most appropriate arrangement will depend on individual circumstances.
The HMRC’s tax manuals that apply to behind-the-camera workers can be found here: