Explanation of the Foreign Entertainers rules
The Foreign Entertainers Legislation requires any payer who makes a payment to any person, which arises directly or indirectly from a UK appearance by a non-resident entertainer or sportsperson to deduct tax at the basic rate of tax – currently 20%.
What kind of payments will suffer deductions?
The law is drawn widely. Examples of such payments are – appearance fees, achievement bonuses, exhibition income, box office percentages, TV rights, broadcast media fees, tour income, tournament winnings, prize-money, advertising income, merchandising income, endorsement fees, and film fees.
The scheme also applies to transfer of assets e.g. sports car for a hole-in-one. Importantly it also covers all expenses paid regarding the performance e.g. hotels airfares etc.
Does it matter who receives the payment?
Payments are within the system no matter who receives them. It covers payments to any individual, partnership company or trust whether or not resident in the UK. It is intended to catch payments to loan out – service companies.
What types of appearances are covered?
Any appearance by the entertainer in the UK in his our character as an entertainer will be within the scheme. It also covers promotional activities eg advertising, endorsement of goods and services.
Which entertainers or sportsmen are involved?
An entertainer or sportsmen includes any non-resident individual who gives performances in character in any kind of activity or sport.
Some examples – popular classical musicians, athletes, golfers, cricketers, footballers, tennis players, boxers, snooker players, motor racing drivers, jockeys, ice skaters, conductors, dancers, actors, TV and radio personalities.
Individuals may appear alone or with others in teams, choirs, bands, orchestra or similar. In Film/TV/Stage it covers anyone “front of camera.”
Are any payments exempt from the withholding tax?
If there is another section of the Taxes Act which requires payer to deduct tax then this takes precedence e.g. if PAYE is due on employment income or income tax on copyright royalties.
From 1 July 2012 there is a De Minimis limit equal to the UK Personal allowance currently for 2015/16 tax year £10,600.
Mechanics
There is a requirement to deduct tax basic rate unless a specific arrangement has otherwise been made with the specialist unit at HMRC – Foreign Entertainers Unit (FEU).
If the payer does not deduct tax they will be held responsible for tax due. The payer is required to account tax withheld on the return form FEU1 within 14 days of the return periods being 30 June, 30 September, 30 December and 5 April of each year. Tax computed at the basic rate of income tax currently 20%.
Reduced rate applications
This is an arrangement which allows the payer to deduct an amount based on the projected profit rather than the basic rate of tax. The purpose of this arrangement is to try to deduct an amount which corresponds closely to the final liability for the entertainer.
If the application is accepted by the Foreign Entertainers Unit (FEU) they will authorise deduction at less than the basic rate tax. Special rules apply to intermediaries – “middlemen” – who can apply to be taken out of the payment chain.
Effect of Tax Treaties
An individual will be liable to income tax under the terms of the tax treaty between the UK and the country of his or her tax residence.
Generally the article of the tax treaty relating to entertainers and sportsmen imposes a tax liability on individuals even if under the “independent services” clause they would normally be taxable in the country of tax residence.
FEU deductions are payments on account of any final UK tax liability for the individual. If the payee is likely to have substantial further liability a tax return will be issued by the FEU.
Relief for the withholding can be restricted in the domestic country of the entertainer. Many countries e.g. the US have a requirement that a taxpayer mitigate their liability as far as possible. They may only get credit for the tax that was due in the UK not just the possibly higher amount they actually did pay on gross turnover.