The audio-visual tax reliefs are intended to support and incentivise the production of culturally British film, animation, high-end TV, children’s TV and video games.

Film tax relief has been around longer than any other creative relief in the UK. The original film tax relief was introduced in 1992 (Section 42 of the Finance (No. 2) Act 1992). And much has changed, even since the introduction of the current iteration of film tax relief, introduced in 2007. The Government is now seeking to support the growth of the audio-visual sectors. 

There are eight creative industry tax reliefs covering film, animation, high-end TV, children’s TV, video games, theatre, orchestra and museums and galleries. Within these eight reliefs, there are five audio-visual reliefs: film tax relief (FTR), animation tax relief (ATR), high-end TV tax relief (HETV tax relief), children’s TV tax relief (CTR) and video games tax relief (VGTR). This consultation focusses on the five audio-visual tax reliefs. The package of reforms proposed in this consultation aims to simplify and modernise the reliefs and ensure they boost growth in the audio-visual sectors whilst remaining fiscally sustainable.

The objectives of the review are to ensure that:

• The UK has modern audio-visual tax reliefs that enhance the UK’s audio-visual industries;
• The reliefs maximise the contribution of the audio-visual industries to the growth of the UK economy;
• The reliefs remain affordable, with additional costs of the reforms are consistent with the Government’s fiscal rules and commitment to sustainability in the public finances;
• The reliefs are straightforward to administer and that the reformed audio-visual tax reliefs should not significantly increase administrative burdens for businesses or HMRC;
• Current and future commercial needs are anticipated without significant future changes being required;
• The reforms do not create additional avoidance opportunities.

Reforms proposed in the consultation include simplifying the film and TV reliefs (FTR, ATR, HETV tax relief and CTR) by merging them into one tax credit scheme, modernising the criteria for HETV tax relief and defining a documentary in legislation. It covers the EU legacy requirements currently embedded in VGTR and the reform of all of the audio-visual reliefs to above the line, refundable expenditure credits.

The Government is interested in feedback from a wide range of sources, including individuals, companies, representative and professional bodies. This consultation closes at 11:30am on 9 February 2023. It expects reforms to the audio-visual reliefs to be implemented in Spring 2024, but will confirm the timing of implementation after the consultation has ended.

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Even though HMRC have not actioned penalties for not registering existing trusts by 1 September 2022, there is still a need to register existing and new trusts. In this bulletin we remind you of the current need to register outstanding trusts.

Since 2017, HMRC have required any tax-paying trusts to be registered with them through the online Trust Registration Service (TRS). The latest UK Money Laundering Regulations extended this requirement to include most non-tax-paying trusts. It is the responsibility of the trustees to register the trust on the TRS.

The requirement to register the trust was initially given a deadline of 1 September 2022. Although this deadline has passed, HMRC has stated they will currently not fine those who have not registered by the 1 September 2022 deadline. However, there is still a need to register your trusts and the following information will remind you of the requirements.

Any existing non-taxable trusts must be registered as soon as possible. Any new trust created from 4 June 2022 must be registered within 90 days of being created. HMRC can issues fines of up to £5000 where the trustees fail to register the trust. However, HMRC have confirmed that, in recognition of the fact that the registration requirements are new and an unfamiliar obligation for trustees, there will be no penalty for a first offence, either for failure to register or late registration, unless this is due to deliberate action by the trustees.

What this means for the trustees is that, should HMRC become aware of a trust which has not been registered by the relevant deadline, a warning letter can be issued. If issued, trustees must register the trust within the deadline stipulated in the letter, otherwise a fine may be issued to the trustees. Trustees need to be made aware that if they receive such a penalty, this will be their personal liability.

Where deliberate non-compliance takes place, each case will be looked at individually by HMRC.

Another point to remember, for those trustees who may think that they don’t need to register their trust until they receive a letter from HMRC, is that, without a proof of registration, trustees of registrable trusts will not be able to deal with financial institutions or professional advisers.

There is still a need to register any outstanding trusts. If you require further guidance on this, there are the following resources available: 

On Techlink, we have created a series of documents and videos to help you guide your clients through the registration service.

In addition to the online guides, we provide a comprehensive TRS Mezzanine service which can you book here.

This is an opportunity for either you or one of your support team to receive step by step guidance on how to create a Government Gateway Organisation ID and step by step guidance on how to complete HMRC’s Trust Registration form. Through screen sharing over Zoom one of our consultants will talk you through the completion process.

Additionally, you can choose to have the Mezzanine with one of your lead trustee clients attending. You should include their name and email address on the booking form. Having the lead trustee attend will incur a fee of £60 (£50 plus VAT), which will be automatically charged to your Partner account.

Book your appointment here. 

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HMRC has updated its guidance on working through an umbrella company. Recent changes to the off-payroll working rules (IR35) will have resulted in many former contractors becoming employed by umbrella companies.

An umbrella company is, normally, a company that employs a temporary worker (an agency worker or contractor) on behalf of an employment agency. The agency will then provide the services of the worker to their clients.

Most umbrella companies employ workers using an employment contract which will set out their terms and conditions. This means the company must comply with employment law.

If a worker is employed by an umbrella company, the tax rules on agency workers and off-payroll working (IR35) will not apply to that worker.

The umbrella company will pay the worker for the work they do for the employment agency’s clients and deduct any income tax and employee National Insurance contributions due under PAYE from their pay.

The end client pays the agency for the worker’s services. The agency deducts a fee for placing the worker with the end client and pays the rest of the money (sometimes known as the assignment rate or the limited company rate) to the umbrella company.

HMRC’s guidance has been updated to show how umbrella company workers are engaged. It has new sections to help workers understand their pay and employment rights and check that their tax and National Insurance is correct. Please also see our earlier Bulletin Working through an umbrella company for more information.

Currently, there is no means by which umbrella companies themselves are regulated, as employment agencies and employment businesses are. Although as employers they are still required to comply with wider employment and tax law.

If a non-compliant umbrella company causes detriment to a worker, the Employment Agency Standards (EAS) cannot take enforcement action on behalf of the worker. It would be up to the worker to enforce their rights via an employment tribunal.

The Government therefore published a consultation last November, the intention being to bring umbrella companies into scope of the framework that regulates employment agencies and employment businesses which is currently enforced by the EAS. This will require primary legislation. Please see our earlier Bulletin. The evidence gathered through this consultation will inform the ongoing policy development of potential options aimed at better protecting workers. It is intended to ensure that the Government is developing regulations based on the most up to date market practices. Future regulations will aim to protect workers’ rights and continue to allow businesses to operate flexibly. We await the outcome.

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HMRC have confirmed they have updated the TRS to include the question: ‘Does the trust have a Schedule 3A data sharing exemption?’ HMRC have placed an update on the Agent Forum and asked trustees to return to the TRS as soon as possible to complete this additional question and keep their record up to date.

What is Schedule 3A?

This is a list of excluded trusts contained in legislation detailed in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. You can find the full list here.

Background to question

Certain express trusts are excluded from registration on the Trust Registration Service (TRS). However, even though a Schedule 3A exclusion may apply, if the trust subsequently acquires a liability to pay income tax or capital gains tax (CGT) and needs a Unique Taxpayer Reference (UTR), the trust will need to register on the TRS. In addition, if the trust incurs any of the other three taxes, i.e. inheritance tax (IHT), Stamp Duty Land Tax (SDLT), Land and Buildings Transaction Tax (LBTT), Land Transaction Tax (LTT) or Stamp Duty Reserve Tax (SDRT) which would bring it within the definition of a relevant taxable trust, the trust will need to register on the TRS.

The data sharing provisions that came into force on 1 September 2022, which allow third parties to request details of information held on the register in certain instances, do not apply to express trusts which fall within the list of trusts under Schedule 3A. This question has been added so that HMRC can identify such trusts to ensure that they are not subject to data sharing.

The additional question is to the benefit of affected trustees and their beneficiaries as it will maintain their confidentiality.

Other TRS updates

The TRS manual now states that because a premium bond purchased by an adult in the name of a minor does not create an express trust it is not registerable on the register.

National Savings Certificates purchased similarly are also outside of TRS registration, unless they have been specifically purchased by trustees of an express trust for a minor child.

Comment

It’s good to see more clarity added to the TRS and that HMRC are putting controls in place to maintain confidentiality where necessary.

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An initial look at the factors in the dividend/salary decision in 2023/24, in the possibly vain hope that the dust has settled on U-turns to September’s ‘fiscal event’, shows dividends losing their attraction.

On 14 October, Liz Truss gave up on her goal of reversing Rishi Sunak’s 2023 increases to corporation tax rates. Although Truss told the Conservative Party Conference that “We are keeping corporation tax at 19%, the lowest in the G20”, this was somewhat disingenuous as the Finance Act 2021 had already provided for the increases. That meant she would have needed to overturn existing legislation, which would not have been easy. On 17 October, the dividend tax rate reductions proposed by Kwasi Kwarteng went the same way.

All of which means the calculations of bonus or dividend require recalculation once more. These latest examples take account of:

• The increase for companies with over £250,000 of profits in the rate of corporation tax to 25% from 1 April 2023.
• The ‘marginal relief provisions’ which will apply for companies with profits between £50,000 and £250,000. The effect of these is that 19% will apply to the first £50,000 of profits and 26.5% to the excess up to £250,000.
• The abolition of the 1.25% Health and Social Security Levy.
• The reduced national insurance (NIC) rates from 6 November 2022.
• The annual basis of calculation for the Class 1 NICs for directors, which means the cut in NICs seven months into 2022/23 results in averaged rates of 14.53% for a director’s employer and 12.73% and 2.73% for the director.

1. Director with sufficient earnings to be a basic rate taxpayer, no available dividend allowance and bonus kept within basic rate band

	2022/23	2023/24 on
	Bonus	Dividend	Bonus	Dividend
Marginal corporation tax rate	19%	19%	19%-26.5%	26.5%	25%	19%
Gross profit	1,000	1,000	1,000	1,000	1,000	1,000
Corporation tax	N/A	(190)	N/A	(265)	(250)	(190)
Dividend payable	N/A	810	N/A	735	750	810
Employer’s NIC	(126.87)	N/A	(121.27)	N/A	N/A	N/A
Bonus	873.13	N/A	878.73	N/A	N/A	N/A
Director’s NIC	(111.15)	N/A	(105.45)	N/A	N/A	N/A
Tax	(174.63)	(70.88)	(175.75)	(64.31)	(65.63)	(70.88)
Net income	587.35	739.12	597.53	670.69	684.37	739.12

The higher corporation tax rates are not enough to counter the savings in NICs, so the dividend continues to be the better option.

2. Director with sufficient earnings to be a higher rate taxpayer (40%), no available dividend allowance and bonus kept within higher rate band

	2022/23	2023/24 on
	Bonus	Dividend	Bonus	Dividend
Marginal corporation tax rate	19%	19%	19%-26.5%	26.5%	25%	19%
Gross profit	1,000	1,000	1,000	1,000	1,000	1,000
Corporation tax	N/A	(190)	N/A	(265)	(250)	(190)
Dividend payable	N/A	810	N/A	735	750	810
Employer’s NIC	(126.87)	N/A	(121.27)	N/A	N/A	N/A
Bonus	873.13	N/A	878.73	N/A	N/A	N/A
Director’s NIC	(23.84)	N/A	(17.57)	N/A	N/A	N/A
Tax	(349.25)	(273.38)	(351.49)	(248.06)	(253.13)	(273.38)
Net income	500.04	536.62	509.67	486.94	496.87	536.62

 At the higher rate tax level, the dividend appears to be only the better option if marginal corporation tax is at 19%. However, this may not always be the case where the £100,000 threshold for personal allowance taper comes into play, because for each £1 of gross profit, the bonus will increase the director’s marginal income by between 8.5% and 19.6% more than the dividend will, implying a greater loss of allowance.

For example, consider a director with £100,000 of earnings in 2023/24 who loses £1 of allowance for each additional £2 of income up to £125,140 of total income. The director pays an effective marginal rate of 60% (40% + 40% x .5) on bonus or 53.75% (33.75% + 40% x .5) on dividend until the taper band ends:

2023/24 on	Bonus	Dividend
Marginal corporation tax rate	19%-26.5%	26.5%	25%	19%
Gross profit	1,000	1,000	1,000	1,000
Corporation tax	N/A	(265)	(250)	(190)
Dividend payable	N/A	735	750	810
Employer’s NIC	(121.27)	N/A	N/A	N/A
Bonus	878.73	N/A	N/A	N/A
Director’s NIC	(17.57)	N/A	N/A	N/A
Tax	(527.24)	(395.06)	(403.13)	(435.38)
Net income	333.92	339.94	346.87	374.62

3. Director with sufficient earnings to be an additional rate taxpayer (45%), no available dividend allowance

	2022/23	2023/24 on
	Bonus	Dividend	Bonus	Dividend
Marginal corporation tax rate	19%	19%	19%-26.5%	26.5%	25%	19%
Gross profit	1,000	1,000	1,000	1,000	1,000	1,000
Corporation tax	N/A	(190)	N/A	(265)	(250)	(190)
Dividend payable	N/A	810	N/A	735	750	810
Employer’s NIC	(126.87)	N/A	(121.27)	N/A	N/A	N/A
Bonus	873.13	N/A	878.73	N/A	N/A	N/A
Director’s NIC	(23.84)	N/A	(17.57)	N/A	N/A	N/A
Tax	(392.91)	(318.74)	(395.43)	(289.22)	(295.13)	(318.74)
Net income	456.38	491.26	465.73	445.78	454.87	491.26

At the additional rate tax level, the dividend is again only the better option if marginal corporation tax is at 19%.

Comment

The new/retained corporation tax rates will make dividends less attractive in many instances, as does the retention of 1.25 percentage points higher dividend tax rates at all levels (not just basic rate).

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