Contracts for Individuals / Loan Outs / 9 Month Rule

Contracts for work or services can be written, verbal or implied. Therefore, a binding agreement may exist even if a written contract has not been issued or signed (although note that contract law can be complex and there are some areas where written contracts do have to be in place, such as when dealing with property). In any event, producing a written contact is always recommended and ensures that both parties are clear of the terms of the contract.

It is also recommended that parties ensure a contract is signed as this confirms that the parties have accepted the terms of the contract.  However, even if a contract has not been signed, it will generally be implied that the contract has been accepted if the work has commenced or if a payment has been made by an engaging entity under the contract.

There are a number of types of contract that are often used when engaging workers on a production.  It is important to understand the distinctions between the different types of contracts for services and therefore the resulting responsibilities of the production.   A summary of the main types of contract for work and services is set out below:

Employees – Employees are employed under a contract of employment.  They generally have less autonomy in how they carry out their work but have the widest range of employment rights.   They must be taxed under Schedule E meaning that their tax must be deducted at source via payroll. Employer national insurance contributions (NICs) are also payable and should therefore be included in the budget at the outset of a production.

Employees can generally be employed in all grades although it is not typical for heads of department to be employees.  However, employment status is ultimately determined by an employment tribunal and depends on the actual working relationship between the engaging entity and an individual (for example, how much control the entity has over the worker) rather than what the contract states.  Therefore, if there are any doubts as to the status of an individual, it is recommended that legal advice be taken.

Freelancers – Freelancers are engaged under a contract to provide services and are generally regarded as being self-employed.  However, they also often have the status of a ‘worker’ which means that they sometimes benefit from a limited range of employment rights (such as a right to holiday and the national minimum wage).  In a production context, freelancers are typically those working in one of the job titles included in the HMRC list within the film, TV & production guidance notes but can also be a worker engaged in a different capacity who works with autonomy and manages their own time and resources.

As freelancers are generally regarded as self-employed, they can be taxed under schedule D meaning they are responsible for their own tax.  However, HMRC rules stipulate that these workers must work for more than one entity otherwise they may eventually be deemed to be an employee instead.  It is currently industry standard to assume that, where contracts last longer than 9 months, a freelancer may be regarded as an employee.  In such cases, legal advice or advice from HMRC should be sought.

Loan Outs – Key talent and crew are often contracted via loan-out agreements.  A loan-out agreement is an agreement where the services of an individual are provided (or loaned out) via a personal service company.  This means that the engaging entity contracts directly with the personal service company rather than the individual.  In such cases, the personal service company rather than the engaging entity is typically responsible for dealing with the tax on any payments made under the agreement.

There are benefits to both parties to contract in this way but there can also be risks with this approach if the agreement is not drafted correctly (i.e. the producing entity needs to ensure that intellectual property created by the individual is assigned to the production).  It is therefore best practice to seek legal advice when producing a loan-out agreement.