On With The Show

IAN HAUGHTON and TERRY BACK of Grant Thornton review the tax rules on travel and subsistence for short-term engagements in the film and television industry.
THE TAX TREATMENT of expenses can appear quite complex and overwhelming for many of those in the film and television industry. This article offers a basic overview of how some of the rules are applied to employees in that industry, and a reminder of two relatively simple ways of easing the burden of reporting to the Inland Revenue.
Basic principles
The basic rule is the same as for all employers: there is no requirement to deduct tax or National Insurance contributions when paying or reimbursing qualifying travelling expenses. A definition of 'qualifying travelling expenses' can be found in the Inland Revenue's useful booklet 490, Employee Travel – A Tax and National Insurance Contributions Guide for Employers.
Two types of business journey qualify:
 journeys which employees have to make in the performance of their duties; and
 journeys which employees make to or from a place they have to attend in the performance of their duties, but not journeys which are ordinary commuting or private travel.
Ordinary commuting, in essence, is travel between home or some other non-work location and the employee's permanent workplace, which we will address later. Private travel, in contrast to ordinary commuting, does not involve a workplace. There is a trap here: if an employee carries out a business duty in the course of a journey which is primarily a private journey, no relief is due.
Subsistence
The good news is that the Revenue accepts that qualifying travelling expenses will include subsistence attributable to the journey, i.e. the cost of meals and accommodation.
Meals on location
If travel to the location counts as business travel, but meals are not provided by the hotel or via the provision of catering facilities on the production set, flat rate allowances for meals may be paid tax free if they do not exceed:
Breakfast £6
Midday meal £7
Evening meal £12
The Revenue accepts these figures without question. However, a production company may have local cost of living factors to consider, in the United Kingdom or overseas. It may be possible to negotiate higher rates where circumstances warrant them, but it is essential to obtain Revenue approval beforehand, otherwise any excess over the above figures is liable to tax and National Insurance.
It should be noted that meal allowances will be tax and National Insurance free for some employees, but not for others. It depends on whether the location is a permanent workplace for the particular employee, as discussed later. Jennifer, in Example 2 below, would not qualify for tax-free meal allowances.
Accommodation
There will normally be no tax liability in respect of accommodation or reimbursement of hotel bills where employees are away on location, provided that the assignment is one which qualifies for the relief.
Where a production company does not provide meals or accommodation, the Revenue allows payment of an overnight allowance tax free up to £60 (excluding meals), or £85 (including all meals). Any excess over these limits must be taxed under pay-as-you-earn, unless the Revenue has given prior approval to a higher figure.
Personal incidental expenses
The legislation on personal incidental expenses allows for tax-free payment or reimbursement of expenses of up to £5 a night in the United Kingdom, and £10 a night overseas.
These amounts are intended to assist with the cost to employees of incidental expenses incurred as a result of an overnight stay in a hotel, such as telephone calls home, laundry, and newspapers. The limits can be averaged for the length of the stay, so a four-night United Kingdom trip would qualify for up to £20 tax-free personal incidental expenses, which for example could be two nights at £6, one at £5 and one at £3.
Any payments above these limits will fall foul of the Revenue, which will seek to recover tax and National Insurance on the full amount of the reimbursement, not just the excess.
Business travel
Employees using their own vehicle can be paid a tax-free mileage rate up to certain limits. These used to be paid under the fixed profit car scheme, but are now under the Inland Revenue authorised mileage rates. For 2001-02, employees can be paid tax free at the following rates:
Engine capacity First 4,000 miles Over 4,000 miles
1,000cc or less 40p 25p
1,001 to 1,500cc 40p 25p
1,501 to 2,000cc 45p 25p
More than 2,000cc 63p 36p
From April 2002 there will be only one band, 40p up to 10,000 miles and 25p above.
If employees want to cycle to the location, they can receive a tax-free allowance of 12 pence a mile (20 pence a mile next year). They may or may not be fit for shooting depending on how far they have cycled!
The Revenue updates its Film Industry Guidance Notes annually with the latest average rates for those employers who use one band for all cars regardless of engine size.
Problem areas – shooting on location
Typically, in the process of carrying out a production, a film or television company will set up a separate production company for the filming of the project. If the employees are seconded from their normal employer, there should be little effect on the travel and subsistence and expenses rules. However, if the employees are given a separate contract by the other company for the duration of shooting, this is likely to deny tax relief for travel to the location and for the related expenses. The Revenue will argue that the location is a permanent workplace for that contract if there is only the one location.
However, where the employment involves a series of locations for the production of a series, documentary, etc., it must be decided whether each location is a temporary workplace or a permanent workplace. The answer determines whether the employee will be entitled to tax relief on expenses incurred on travel and subsistence for that location.
We do not intend here to explore fully the subject of temporary workplaces. Typically, a location will be a temporary workplace if the engagement at that site is not expected to last longer than 24 months and does not comprise all or almost all the period for which the employee is likely to hold the employment. The latter test will be failed with a separate engagement for the duration of shooting.
The three Examples below illustrate the point.
Example 1
Adam is recruited on 1 January 2001, by XYZ Productions, based in Soho. His contract of employment states that his duties will be performed as and where required to meet the company's needs, but primarily in Soho.
Adam is required to work on location in Milton Keynes for six weeks, before moving across to Staffordshire for a further 18 weeks, before returning to London.
Adam stays in hotels for the duration of both assignments and claims the cost of his travel, accommodation and subsistence for the periods. The expenses are reimbursed by XYZ Productions, which is subsequently advised by the Inland Revenue of a failure to operate pay-as-you-earn on the expenses, as the Revenue considers that each location was a permanent workplace for the purpose of the travel and subsistence rules.
This challenge is not considered correct. As long as Adam is assigned to a location for less than 24 months, each location is a temporary workplace and therefore the tax relief is available.

Example 2
Jennifer is recruited by XYZ Productions to work specifically on the Staffordshire location. While on site, she incurs similar expenses to Adam, and is reimbursed by the company.
These expenses will be liable to tax and National Insurance because her stay is for the duration of her contract.

Example 3
Malcolm is recruited as a permanent arts director, and therefore treated as an employee. His duties include responsibility for the construction of props, models, sourcing set dressing requirements and graphic. The majority of these duties are carried out at the company's head office in London. However, Malcolm is also required to perform some of his duties on location in Milton Keynes and Staffordshire.
Malcolm stays at a hotel close to both locations and will be able to receive reimbursement tax free or claim tax relief for the costs, as is the case with Adam.
However, if he were engaged, not as arts director, but only to perform all the other duties, and only for the duration of the shooting at Milton Keynes and Staffordshire, the Revenue would treat him as self employed, and the expenses would be dealt with under the Schedule D rules.
Seven-day rule/letter of authority cases
The Revenue accepts that individuals employed in the industry for less than seven days can have their expenses paid gross, as can individuals engaged on terms complying with letters of authority from the Revenue.
Unfortunately, the seven-day rule only applies for tax, so it will still be necessary to consider whether National Insurance is due on a particular expense. This is yet another frustrating example of red tape, considering that a letter of authority from the Revenue is accepted as covering the National Insurance treatment.
Dispensations and settlement agreements
Employers across all industries are increasingly burdened by the administrative cost of employer compliance. One way of reducing this burden is to ensure the company has an up-to-date P11D dispensation notice which will remove the need to include certain non-taxable items on the P11D returns.
Advice should be sought before making an application to ensure a satisfactory outcome and to take the opportunity to review the company's compliance procedures. There is an added benefit to the employer, as items in the dispensation do not attract a Class 1A National Insurance charge.
A pay-as-you-earn settlement agreement, on the other hand, is a useful way for the employer to deal with the tax due on the provision of minor benefits to employees, for instance excess personal incidental expenses, small gifts, staff entertaining. There remain, however, key dates, issues on rates of tax, Class 1B National Insurance and interest charges on late payments to consider. It is well worth taking professional advice when applying for a pay-as-you-earn settlement agreement, and particularly so when agreeing the liabilities.
Dealing with the Revenue
For the benefit of those readers who are not aware, London Provincial 10, Gateshead Riverside and Manchester Blackfriars are the Revenue's dedicated tax offices for dealing with the tax affairs of companies and workers within the film and television industry.
Before shooting on location it may be worth reviewing proposed expenses payments, and reaching agreement in advance with the Revenue.
Ian Haughton, senior tax manager, and Terry Back, media and entertainments partner, are in Grant Thornton's London office.

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