Pensions and Tax talk by Tony Lennon
At our general meeting on February 7th, Tony Lennon, BECTU’s Research Officer and all-round tax guru very kindly came along to talk to us about recent developments in pension and tax legislation which will have an effect on us freelancers working in post-production.
Although I’m no expert in such matters (this will be revealed to be something of an understatement) I shall hereby attempt to give you a precis of his insights.
In 2012 ‘Auto-enrolment’ pensions were introduced. The government’s aim is to have every employee in the country in a position to contribute to an occupational pension, regardless of the nature of their employment.
The rates have been staggered. Currently the employer is obliged to contribute an amount equivalent to 1% of the employees wages, a further 1% is contributed by the employee.
However from this low starting point, the figures are being ratcheted up. In April 2018 this changed to 2% from the employer, 3% from the employee (5% total) and in April 2019 it will go up again to 3% from employer, 4% from employee, with 25% tax relief effectively adding a further 1%, (8% total).
The scheme is not yet fully implemented. It is being introduced in a phased manner. In 2012 it started by targeting the biggest employers (those with more than 250 employees). Currently the rollout is incorporating employers with fewer than 30 employees in their PAYE scheme in April 2012. This will include many production companies working in our sector.
Once these smaller employers have been incorporated, the rollout will begin to include employers who have registered as new companies since 2012. This will also have implications for us in film & TV, because it will include those companies which are set up just for the duration of a particular project.
The rollout will be complete by early 2019.
How do you get into an auto-enrolment scheme?
Permanent employees (those paying PAYE tax) will be enrolled before the start of their contract.
However if you are self-employed, the employer hiring you is allowed to defer your enrolment for 3 months from the date when you start working.
If your contract exceeds 3 months you should be auto-enrolled at that point. Unfortunately your contributions will not be back-dated to the start of the job. At the beginning of a long job you can ask your employer to enroll you, and they may choose to do so, but they’re under no legal obligation until 3 months have elapsed.
You can opt out of the scheme should you wish to, you’ll be given two weeks from being informed you are to be enrolled to withdraw.
If you are trading as a limited company, then in effect you are a PAYE employee of your own company, and therefore responsible for organizing your own pension. And of course you would not receive any pensions contributions from the production.
Who Provides the Pensions?
There are 2 big trust-based schemes which satisfy the government’s criteria of an annual management scheme of less than 0.5%:
There is also the government-provided default scheme - ‘NEST’. BECTU are advising their members to look closely at NEST because it has a number of advantages for freelancers. The trust-based schemes are not keen on freelancers and are under no obligation to accept you, however the government scheme accepts all-comers. The trust-based schemes all expect regular payments, while NEST allows you to be more flexible.
If you have a NEST pension, all you have to do when you start a new job is provide your new employer with your ID no., they enter this into their payroll software, in 30 seconds it’s done (apparently!).
You will be enrolled into what is known as a ‘Cohort fund’ which tailors the investments to your age. If you are in your 20s, investments made are unadventurous, this is known as the ‘foundation’ stage, with a low risk profile. The thinking behind this is if youngsters lost money in the early days they will lose faith in the entire scheme and bail out.
In your middle age you enter the ‘growth’ phase where investments tend to become more aggressive.
Then there’s a safer ‘consolidation’ period in your later career, in case there is some turbulence in the stock-market, you wouldn’t want to jeopardise your holdings when there is limited time for markets to recover before your need to start drawing down the pension.
There is a choice of several different funds, higher or lower growth for example, or funds which won’t impinge on your principles, like Sharia-friendly or ethical.
As a freelancer you only qualify for statutory ESA (Employment Support Allowance) but this is massively complicated to apply for. You will have to undergo an assessment, by which time you are probably better and back to work. Also it doesn’t kick in until you have been ill for 4 days.
Employment Status changes for Freelancers
The government recently commissioned Matthew Taylor to make an assessment of current employment practices, with a particular focus on what is happening in the so-called ‘gig economy’.
As a result of this review, there has recently been a change in the law to combat so-called ‘bogus’ or ‘disguised’ employment whereby a company might hire an individual registered as a personal service company (PSC), when to all intents and purposes that person is actually a ‘worker’, in order to save on employment taxes.
In the past, if this bogus employment was discovered by HMRC, the individual would have been liable for the unpaid tax. This has now been changed so that in the public sector (including the BBC), the employer is now liable.
The result of this is that the BBC has changed it’s practices to put a lot of those it employed through PSCs onto their PAYE scheme, because it’s the safest thing for them to do. (Especially because the government’s online checker, which is supposed to be used to differentiate between different types of workers according to the nature of the employment, has been known to give incorrect results).
In the private sector, liability still rests with the individual. However this is going to change, probably in April 2019.
Currently it is possible to be employed as a freelancer and categorized as a ‘worker’, paying PAYE tax and full NI contributions, but with none of the employment rights which permanent employees enjoy. You’ll get holiday pay, and beyond 3 months will get pension contributions, but no sick pay for example. However, this is all very much in flux and BECTU is looking to legally challenge this in test cases in the near future.
‘Making Tax Digital’
There are moves afoot which will require the self-employed to submit quarterly tax returns online. Every item of expenditure, income etc., will have to be logged digitally. This is going to be really onerous for freelancers. BECTU are lobbying hard against it.
by Dan Roberts
SOURCE: Photo by Fabian Blank on Unsplash