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RED CARDS, YELLOW cards, but no scores for artistic merit.That's what has been missing from the World Cup so far.
Strikers need to know whether their step-overs are balletic enough, midfielders want their perfect passes recognised. Defenders are sure that the expressions of shocked innocence on their faces as the referee books them for a metatarsal-crunching tackle are worthy of an Oscar, and all goalkeepers are, of course, auditioning for the role of 'Howling Mad' Murdoch in the remake of The A-Team. After all, it is going to make a significant difference to their tax bills.
Why would the artistry and theatricality of a footballer's dive to the floor in the penalty area, clutching his chin as though floored by an uppercut, have any impact on his tax liability? For the answer to this, we need to return to the calm of a recent Special Commissioners' hearing in London, and consider the case of Richard & Judy.
That's entertainment?
Richard Madeley and Judy Finnigan presented the ITV This Morning programme from 1988 (and not 1993 as stated in the first paragraph of the decision) to 2001. The programme was made by Granada, and Richard and Judy both already had employment contracts with the company prior to starting on the programme.
The Special Commissioner, Mr Nowlan, said that he based his knowledge of the programme 'mainly' on two videos which he had been shown: one of a programme chosen at random by HMRC and one of four 'skits' or sketches which were occasionally included in the programme (including Richard's infamous Ali G sketch). He seems to have given a great deal of weight to the latter, but even he accepted that these were a very small part of what was otherwise a straightforward format magazine show.
The interaction between Richard and Judy ensured, however, that the programme was extremely successful and made major stars of both of them. At some point, presumably 1993 since that is the first year that was appealed, they engaged the services of an agent, Anne Sweetbaum.
The main work that she did was to renegotiate their contracts as they came up for renewal, generally once every two years. This would take about three months work. She also dealt with Granada over other issues that Richard and Judy had about work — the conditions at the Liverpool studio where the programme was initially made, and a dispute about a new co-producer.
She dealt with their engagements on other programmes, which were dealt with under Schedule D, and kept their diaries, booked them for charity events, award ceremonies, etc. Another significant part of her job was dealing with the press, both in relation to short-term issues about the programme and more generally in 'maintaining the brand' of Richard & Judy. Finally, when the show moved from Liverpool to London, Richard and Judy 'naturally had little available time to go house-hunting themselves' and so Ms Sweetbaum assisted them in finding a new home.
Commission deductible?
The amount of money involved as agents' fees was not given, but it 'could fairly be described as “very substantial”' according to Mr Nowlan. HMRC refused a deduction for it against employment income, and Richard and Judy appealed. They claimed the expense was deductible under TA 1988, s 201A (now ITEPA 2003, s 352) or alternatively under the standard rules of TA 1988 s 198 (now ITEPA 2003, s 336). Later in his decision Mr Nowlan quickly disposed of the latter point — most of the expenditure was clearly not incurred in the performance of the duties. He took a little longer to decide about the 'brand image' work, but still came down against it being deductible under s 198.
S 201A, however, was completely different. As Mr Nowlan said, it 'is entirely governed by the simple issue of whether, as performers, Richard and Judy are aptly described as “theatrical artists”… The nature of the services rendered by the agent is completely irrelevant'.
Agency deductions
In general, employment agencies are prohibited from charging potential employees for finding them work — the charge has to be made to the employer. However, many professions in the entertainment industry are excluded from that prohibition by Employment Agencies Act 1973, Schedule 3. It excludes an 'actor, musician, singer, dancer, or other performer'. It also excludes a 'professional sports person'.
As Mr Nowlan notes, the list mostly covers situations where there is a continuing relationship with the agent, 'so that the agent might be finding numerous engagements for the worker'. The number of engagements was, of course, a critical element in the decision in Davies v Braithwaite 18 TC 198 that an actress was self-employed, and the lack of it was one of the reasons why a dancer was held to be an employee in Fall v Hitchen 49 TC 433. So in most cases you would expect that the contracts would not actually be employment contracts, but contracts for services. Why, then, did s 201A suddenly get inserted into TA 1988 in 1990, giving relief for fees paid to an agent in respect of an employment as 'an actor, singer, musician, dancer or theatrical artist'?
Gone West
The taxpayer in Fall v Hitchen was engaged on a standard contract (often referred to as an 'Esher' contract) negotiated between the theatre industry and the actors' union, Equity. Sporadically during the 1980s the Revenue would try to enforce the view that the engagement of someone on an Esher contract meant that he or she was an employee. I dealt with the tax affairs of a number of struggling actors at the time, and had to send off several letters, particularly to local council-run theatres who took this all rather more seriously than the independent ones, assuring them that my client was in fact self-employed. Nine times out of ten they accepted it.
Then in the late eighties the Revenue announced that in their view actors were almost always employees, and that they were going to treat them as such, although with concessionary Schedule D treatment for those who had been self-employed for at least three years. This was to apply from 1990/91 onwards. While Equity prepared to support some test cases to challenge the whole basis of this approach, they also lobbied for some specific changes to ameliorate the regime if it did survive. One of the obvious problems was that agents' fees, clearly deductible under Schedule D, would become non-deductible under Schedule E, and therefore a provision was needed to make them allowable. That was how section 201A came into being.
However, in 1993 the test cases of McCowan and West were decided by the Special Commissioners in favour of the taxpayers, and any attempt by the Revenue to treat them as turning solely on their own facts was abandoned after Hall v Lorimer [1994] STC 23. Actors reverted to Schedule D, and the logic for the section disappeared. The section itself, however, remained, and could therefore form the basis of this appeal.
Theatrical performers
The only point at issue, therefore, was whether or not Richard and Judy were 'theatrical artists'. The debate at the time the provision was introduced made it clear that this did not refer solely to performances in a theatre. Resting in part on the sketches and in part on the 'performance' of Richard and Judy in presenting the programme in an informal way, he held that they were performers and entertainers rather than straightforward presenters — people turned on to watch them, and not merely to see the items in the programme — and that he 'inclined to the view' that they were theatrical artists.
It is when he goes on to consider the position of other television presenters that the artificiality of this approach becomes clear. Newsreaders are not theatrical artists, apparently. Jeremy Paxman 'might well be classed as an entertainer, and a performer, but I very much doubt as a theatrical artist' when presenting University Challenge. Chris Tarrant is 'borderline'. Anne Robinson, however, is 'indeed probably theatrical'. Mr Nowlan tries to differentiate these in paragraph 75 of his decision by saying that the theatrical artists 'are all putting on one or another form of act. Everything is a performance. And to my mind Richard and Judy share that attribute. Their act was and is to perform the role of the informally chatting husband and wife team, constantly trying to entertain'. This section of his decision has, rightly in my view, been the subject of a great deal of criticism, not least because it seems to lead to the absurd conclusion that if he thought Richard and Judy were simply being themselves on-screen, he would have found against them.
Caught offside
Back to the football. Mr Nowlan mentioned that the position of footballers had been alluded to in the case. The Employment Agencies Act gives agents permission to charge them fees, but there is no provision to allow them to be deducted for tax. There was some suggestion that they were dealt with by grossed-up payments to the footballers concerned, and there have been newspaper reports in the past that payments made by clubs to agents who were actually acting on behalf of the players and not the club should be treated as benefits in kind. It was recently reported that the Premier League has called on the FA to outlaw the practice of clubs paying the agents' fees of players, which would bring the issue into even sharper relief.
Whilst I suggested, tongue in cheek, at the start of this article that footballers could claim that they were theatrical artists, in reality of course they cannot. There is no question that they are employed by their clubs, and so there would appear to be no way in which they can legally claim a deduction for agents' fees in respect of their salaries. Fees paid in respect of their promotional activities and deals over image rights would of course be allowable against their self-employment income.
And ultimately, why should they — and indeed why (as a matter of policy) should Richard and Judy have been able to claim that their agents' fees were deductible? The main task of an agent appears to be to negotiate increases in salary and better conditions of work. In the 'normal' world we either do that ourselves, or join a union to bargain for us. The First Division Association (the union for top-flight civil servants) pointed out in a motion to the Trades Union Congress last year that there is no tax relief on trade union subscriptions. If it is right for theatrical artists to get tax relief on agents' fees, why can't ordinary employees get tax relief on union subscriptions?
Back to square one
The other work of the agent (apart from house-hunting …) was described as protecting the 'brand' of Richard & Judy — something which was relevant to their careers over and above the individual employment contract. This begs the question of whether they should have been considered as employees in the first place. Mr Nowlam's decision seems to have been based on the idea that for the years concerned the Revenue were insisting that people in their position were to be treated as employees. In fact, as is clear from the analysis above, the Revenue had by then backtracked from this position. Arguably, therefore, if Richard and Judy wanted to be able to claim their agents' fees as deductible, they should have entered into a contract for services with Granada, rather than a contract of employment. Certainly there seems to be no theoretical justification for one group of employees to be able to claim for help in negotiating their terms and conditions when the vast majority of employees cannot.
