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The tax minefield that now confronts PCCs

17 May 2013

For tax purposes, are church musicians, bell-ringers, and others employees, self-employed, or neither? Gavin Drake investigates

THE employment status of bell-ringers, choir members, and organists is not likely to have troubled the minds of many clergy or church treasurers over the years. But changes to the way the tax system operates is causing many old assumptions to be challenged. It highlights what one expert describes as "bad practice" that has been allowed to creep in.

In most cases, employment status is not an issue: musicians and bell-ringers are generally volunteers who donate their time, and many even make donations to help pay for robes, bell repairs, and so on. But the status of a volunteer changes if the people concerned receive a fee for "performing" at weddings and similar occasional Offices.

Employment status is not always an easy thing to resolve. Judgment is still awaited from the Employment Appeal Tribunal in a case heard last November to decide whether Church of England clergy are employees, or, as is traditionally understood, office-holders (News, 9 November).

In the case of organists, employment tribunals have recently decided that they are employees; or, rather, that the two specific organists bringing separate claims against different churches were employees (News, 20 February 2008; 20 May 2011). But neither ruling set a precedent that would cover all organists. Every case has to be decided on its own facts because of the many different arrangements by which organists carry out their work.

But the status decided by an employment tribunal does not necessarily provide a solution, because it is possible for a person to have one status giving rights under employment law, and another status under tax laws.

Employment status is not determined merely by an agreement between the "employer" and the worker, but on the conditions of the "engagement". An employee enters into a contract of service, while a self-employed person enters a contract for services. What that means in practice is not always clear.

Typically, an employer will have supervision or control over an employee, whereas a self- employed person will have greater freedom to decide how a particular outcome is achieved, and will also be responsible for providing his or her own tools and equipment.

A self-employed person is responsible for accounts and paying his or her own tax and National Insurance contributions on the basis of an annual tax return. For employees, this is taken care of by the employer under the Pay As You Earn (PAYE) system, and the employer is now responsible for real-time notification of all payments, no matter how small, to HMRC (News, 15 March, 3 May).

HMRC has an anonymous Employment Status Indicator on its website, made up of a series of questions that indicate whether a person is an employee or employer. Completing the form using typical responses for bell-ringers or choir members receiving a fee produces the result that they are employees.

But Steve Coleman, a former tax inspector and bell-ringer who writes for the journal The Ringing World, says that the tool is inaccurate. "If you get money, you are not necessarily employed or self-employed. You can get money for other reasons.

"If you get money for a service, you are still not self-employed if you are not doing it on a regular basis with a view to making a profit.

"If you get a casual receipt, it is taxable if it is for a service supplied under a contract. If you enter into a contract to supply a service on a one-off basis, that's taxable. The question the courts have considered over the years is what does that mean . . . and they have said that it has to be an enforceable contract.

"If you're a chorister, and you're asked to sing at a wedding, and you're told that you'll receive a fiver, but decide to stay at home and watch the football instead, nobody could take a writ of specific performance against you."

He argued that a chorister who sang but was not paid would be unable to issue a claim against the parochial church council because "their arrangement isn't with the PCC: it is with the bride, the bride's mother, the groom, or whoever is making arrangements for the wedding." He said that churches had no responsibility, as they were "merely handing over the money that they have received".

His view would, however, appear to be contradicted by a sample wedding-fees form produced by the C of E as part of its Marriage Project, to be given to prospective couples (justforvicars-yourchurch-wedding.org). It includes a list of optional extras, such as bell-ringers, choir, and organists. The selected options, and their fees, are added to the statutory fee to produce a total package price, payable to the church.

This would mean that the wedding couple's contract is with the church, which would then be responsible for ensuring that the paid-for services are provided.

A spokesman for the Charity Commission said: "It is the responsibility of the trustees to take consideration for the difference between reimbursing volunteers for expenses, and payments for services by individuals. The guidelines about this, and the regulation of subsequent taxable income, are a matter for HMRC."

A spokesman for HMRC says that payments to bell-ringers and choristers could be treated as neither employed nor self-employed income, "where they simply reimburse expenses".

"Whether amounts paid to an individual for bell-ringing are taxable or not will depend on the facts of the particular case, as they would for any trade or activity. Employment status is not a matter of choice: it is determined by the terms of the engagement between the worker and the engager - in this case, the church."

"If people put down that they got some money from wedding fees on their tax return, the Revenue just tax it," Mr Coleman says. "If you put down that you have received income, and say that it is taxable income, they are not going to say, 'Well, hang on, what was this income?' They'll just tax it. But there have been no cases of the Revenue saying it should be taxable."

The HMRC's Employment Status Indicator and further guidance is at www.hmrc.gov.uk/employment-status.

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