If a foreign performer is booked and their UK income is expected to exceed their personal allowance (£11,850 for 2018/19), the payer must deduct withholding tax from the payment. The Foreign Entertainers Unit will only issue tax deduction certificates in the name of the performer and the total payment can be made up of both performance income and reimbursed expenses.
For all performances in the UK, 20% tax is withheld on performance fees, taxed when the performance is undertaken.
Any expenses that are reimbursed also need to have tax withheld, with the reimbursement being the net value to the performer. This means that the payer must ‘gross up’ the expense and calculate the withholding tax on the gross amount.
For individuals with UK performance income in excess of the Basic Rate band (£46,350 for 2018/19), the withholding tax may not be enough to cover their tax liability and they will be required to complete a UK Tax Return. In such cases, direct expenses that are incurred wholly and exclusively for the purpose of their business are deductible against their income. There is also scope to apportion an amount of the worldwide indirect costs based on the number of performances in the UK.
One significant point to note is that payments made to a seemingly unconnected entity, such as a service company, do not affect the UK tax treatment if it is controlled by the foreign performer. In such a case, the income is attributed directly to the individual and subject to UK Income Tax. Double taxation relief can very often be claimed, where available under the rules of the performer’s country of residence, for the UK tax paid against their domestic company or individual tax liability.
This is a very niche area of tax which is standalone in what is required in the case of the employer and the performer.
If you require any guidance or advice in this area, please approach your usual Buzzacott contact or email firstname.lastname@example.org.
This article was taken from the Spring 2018 issue of the Private Client team's Quarterly Tax Digest. You can access all the other articles here.