COVID-19 – A Note for Producers

Posted: April 15, 2020

Our learnings from recent PACT webinars and more

The Producers’ Alliance for Cinema and Television (Pact) recently held a series of online webinars to address queries arising from the impact of Covid-19 on the film and television industry.  In case you missed them, we have provided below some notes setting out our learnings from these webinars, together with our own advice and thoughts in addition.  We hope this information is helpful; should you have any queries or wish to discuss any of the issues, please do get in touch.  We’re working as normal (if remotely).

Overview / current Government assistance

  • Job Retention Scheme.  The Government’s Coronavirus Job Retention Scheme will form a major part of the collective economic recovery from this crisis.  More details are still to emerge; unfortunately, we do not yet know when furlough grant payments will be made (late April or early May seems most likely).  More on the Coronavirus Job Retention Scheme and furloughing is provided below.
  • Self-employed.  A package for the self-employed has been announced and the Government has stressed that it will contact eligible individuals to apply for support.  Pact is aware that some individuals and companies (e.g. sole trader limited companies) will ‘fall between the cracks’ of the various Government packages of support.  Pact is pressing the Government for help for those companies and individuals so affected.
  • Loans Scheme.  Government-backed business loans have been announced.  Pact reported that the Treasury is stamping hard on banks charging high interest rates for such loans.   Pact appreciates that producers are keen to avoid running up large debts during this time; Pact is continuing to engage with the Government on this.
  • VAT holiday.  The Government recently announced that businesses may defer VAT payments for three months. The deferral will apply for payments that would normally arise from 20 March 2020 to 30 June 2020, for VAT periods ending February, March and April 2020. This represents a big opportunity for all businesses’ cashflow and businesses should, if they haven’t already, ensure that VAT is not being automatically debited from accounts via direct debit payments or similar.
  • Broadcasters.
    • Pact reported that broadcasters are, where possible, trying not to terminate productions.  In some circumstances it may be necessary (e.g. if a documentary focussing on a now-cancelled event can’t progress) but broadcasters are looking at things on a case-by-case basis.  Pact will ask broadcasters to continuing commissioning (i.e. to suspend at filming stage, rather than before) so other elements of development / production / pre-production can continue and ‘subject to contract’ commissioning payments can flow.  Pact advised that there may be delays since there is a lot for broadcasters to address.
    • Where productions are suspended, documenting overages while suspended (e.g. time and resources when productions are put into / taken out of suspension) is important since these costs may be recoverable at a later date.
    • During this period of inactivity, many businesses will be eating into reserves to pay employee and premises costs, for example.  Those reserves would, in ordinary times, be used to fund things such as development of new content and ideas.  Pact is talking actively with broadcasters (especially the BBC and C4) to find support for / maintain R&D in this period, given that producers’ own resources may be more depleted than normal and further given that development can, largely, still be conducted remotely (and therefore can be used, to a certain extent, to maintain businesses).  Broadcasters are currently assessing their own finances (for example, advertising-backed broadcasters have seen a drop-off in advertising revenues, meaning programme budgets may have to be adjusted) and charters (governing how money may be spent) to assess the viability of sustained R&D funding at this time.  Pact is asking broadcasters to issue firm advice as to what approach they will each take in respect of R&D and commissioning more generally.
  • Lobbying.  Pact is lobbying Government to extend further support to the film and television sectors:
    • R&D Tax Credit.  Pact is reportedly in a number of conversations to encourage the Government to extend the R&D tax credit scheme to the creative sector.  R&D tax credits are rebates on R&D expenditure and are currently available to mostly patent-generating companies / businesses in the technology and life sciences industries (i.e. companies creating IP).  Pact has asked the Treasury to extend the relief to the creative sector (which also creates IP).  Pact stated that, if Pact are successful in persuading Government to extend R&D tax credits to the creative sectors, it is unlikely such relief would be backdated.
    • Grants.  The Government recently announced two grant schemes: the Small Business Grant Fund (grants of £10,000 for eligible businesses in England in receipt of either Small Business Rates Relief or Rural Rates Relief in the business rates system), and the Retail, Hospitality and Leisure Grant Fund (grants for eligible businesses in the retail, hospitality and leisure sectors).  Pact is lobbying for these grant schemes to be extended to all SMEs in the creative industries.  PACT warned that it will be difficult to persuade government on this, but PACT will continue to represent the industries’ concerns to the Government.  Pact noted that the industry is in a strong position given the creative sector’s importance to the economy (and to GDP figures).
    • Business Rates Relief.  The Government has announced a business rate relief scheme for businesses in the retail, hospitality and leisure industries, as well as to nurseries.  Pact is lobbying the Government to extend this scheme to businesses in the creative sectors.
  • Pact Accelerator and the UK Indie App. Pact urged its members to look at the Pact Accelerator (a website containing lots of useful resources and information; Pact describe it as “a one stop shop for indies across the UK”) and the UK Indie app.  The UK Indie app is a platform to which users can upload their existing catalogue of content and promote it to around 5,000 potential buyers.  The app is free for Pact members and provides a useful resource during this time when buyers are keener than ever to acquire new content.

Coronavirus Job Retention Scheme: overview and eligibility

The Coronavirus Job Retention Scheme has been put in place by the Government to help businesses who cannot maintain their current workforce because their operations have been severely affected by coronavirus (COVID-19).  Under the scheme, business can furlough employees and apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and pension contributions (up to the level of the minimum automatic enrolment employer pension contribution) on that subsidised furlough pay.  The scheme is designed to pay monthly wage costs arising from 1 March though it is not yet clear when grants covering such sums will be paid to employers (the end of April or beginning of May seems likely).

Under the scheme, employers can claim for furloughed employees that were on PAYE payroll on or before 19 March 2020 and which were notified to HMRC on an RTI submission on or before 19 March 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March 2020. Employees that were employed as of 28 February 2020 and on payroll (i.e. notified to HMRC on an RTI submission on or before 28 February) and were made redundant or stopped working for the employer after that and prior to 19 March 2020, can also qualify for the scheme if the employer re-employs them and puts them on furlough.

Employees can be on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour contracts.

Where an employee has been issued with a PAYE contract of employment by the employer in February/March 2020 for work undertaken for that employer in February/March 2020 (but the contract has not yet been signed), the employee is likely to be eligible for the scheme provided that: (i) the contract of employment is continuing until at least 19 March (or 29 February if they stopped working prior to 19 March but have since been re-engaged); (ii) the employee was on payroll on or before 19 March 2020 (or 28 February if they stopped working prior to 19 March but have since been re-engaged); and (ii) the contract of employment has been suspended due to the impact of Covid-19 with some remaining work still to be done under the contract, and the prospect of returning to complete that work at some point in the future.

Coronavirus Job Retention Scheme: Other issues

  • Retracting termination notices and re-engaging workers paid via PAYE.  Provided that an employee was on the payroll on or before 28 February 2020 and the employee was made redundant or stopped working for the employer after 28 February 2020 but before 19 March 2020, they can be re-employed and furloughed regardless of the reason they stopped working.  If a business has terminated an employee’s employment, or an employee resigned, it is possible to reverse / retract the termination notice with the consent of both parties (employer and employee), provided that such reversal is properly documented (ideally in the form of a side letter, which side letter would also record an understanding between the employer and the individual that the employer will be applying to the Coronavirus Job Retention Scheme to cover up to 80% of the individual’s salary).  Once the termination notice has been rescinded the business should be able to claim for up to 80% of the employee’s salary (subject to the £2,500 monthly cap).  This means that those who were on contracts that would otherwise have ended (e.g. short-term PAYE freelancers) could have their employment contracts artificially extended so that they can benefit from the furlough scheme, provided they were on payroll on or before 28 February 2020 and they were made redundant or stopped working for the employer after 28 February 2020 but before 19 March 2020. If an employee has been made redundant (before 19 March), a business could look to re-engage the employee (provided, again, that both parties consent, the conditions of the scheme are met and the re-engagement is properly documented) so that the business can apply for grant to meet up to 80% of the employee’s salary.  Pact stressed that any employers looking to re-engage employees or rescind termination notices should properly document such arrangements since HMRC will likely want to see contractual evidence.  This means that, where possible, side letters (signed by both parties) are preferable to email communication.
  • Backdating.  The guidance states that claims should be made from the date that the employee finishes work and starts furlough leave rather than from the date that the decision to furlough was made or the date that the employee was notified of their furlough status. It is possible to backdate grants to 1 March (the date the scheme began) if a PAYE employee finished work on or before 1 March and meets the eligibility criteria (see above).  There is unfortunately no clarity on whether businesses may backdate the start of a re-engagement though it would appear likely to be permitted.
  • Small companies and loan-out vehicles.  Small companies, and many loan-out vehicles (e.g. for writers, individual producers, etc) often pay minimal salaries to its staff (often the directors), then the remaining profits are taken as dividends and distributed to the entitled parties.  In such circumstances, the Job Retention Scheme will apply (provided the above-mentioned criteria are satisfied) but only to the PAYE proportion, i.e. the salaries.  It is unlikely that the Government will ‘look behind’ the structure to assess the company’s assets (profits) and make up for the shortfall (i.e. the scheme will not cover lost profits nor, by extension, lost dividends).  The scheme will only cover 80% of the PAYE costs (e.g. 80% of the salary that a director takes from a company).  Bear in mind that, once furloughed, the worker will not be able to provide services to the company for the duration that the furlough is in place, though company directors may still continue to perform their obligations as statutory officers (provided they don’t provide any executive services to their employer).
  • Working while furloughed?  The Coronavirus Job Retention Scheme is a is a job retention scheme and not a job subsidy scheme, meaning that those who have been furloughed may not still work for their employer.  However, an individual could be furloughed for one employer but still work for another.  Despite this, employers must be careful to observe the scheme’s restrictions otherwise there is a risk that the Government may not award the full grant.  The scheme for the self-employed works slightly differently in that self-employed persons may be eligible for a grant and still be able to work. 
  • Paying people who are still working on a suspended production.  For PAYE workers who are still providing services to a suspended production (i.e. who have not been furloughed but continue to work), Pact suggests that the situation should be explained to the commissioner who may be able to assist.  There may be a clear benefit to continuing work which falls outside of payment milestones.  If people are kept working, then the set-up time and cost of getting a production up and running again will be much reduced since those workers will be familiar with the ‘ins and outs’ of the production.
  • Retention of freelance staff on a suspended production.  Non-PAYE freelance staff may not be furloughed using the Coronavirus Job Retention Scheme.   The costs of retaining non-PAYE freelance staff who are retained on a production during suspension (by payment of a retainer) will be an overage.  It would be advisable to check with broadcasters / commissioners before retaining freelance staff in this way (to see if the overage will be covered or whether production must instead bear the cost).
  • Furloughing more than once.  Government guidance has confirmed that employees may be furloughed multiple times while the scheme is open provided each period lasts at least 3 weeks.  This could allow businesses to rotate staff on and off furlough, though please bear in mind that proper procedures must be followed each time a decision to furlough a member of staff is made.  Pact advised that, where possible, employers should refrain from the temptation to furlough employees multiple times since, unless such arrangements are clearly documented and in-line with the guidance, HMRC could look unfavourably upon such arrangements (for example, if multiple furloughing is used by businesses as a way around the scheme’s rules).  Generally, it is better to keep things simple (and clearly documented), i.e. to keep the furlough in place until there is clear reason to re-engage the employee on a sustained basis.
  • Multiple roles. Pact advised that if an employee fulfils multiple distinct roles for one employer (e.g. a creative role and an administrative role) and such roles are paid separately via PAYE then one of these roles (not both) could be furloughed so long as the scheme’s criteria are met.
  • Holiday during a period of furlough.  Holiday will accrue to employees during the furlough period and prior to the date of furlough.  In respect of holiday which accrues during the furlough period, the employer may ‘deem’ the employee to have taken such holiday.  We recommend such arrangements are properly documented otherwise employees may recommence work in, say, June and expect to be able to take holiday accrued during the furlough period (which could present cashflow issues).
  • Calculating the furlough reimbursement.  Government guidance provides that the reference salary (‘normal pay’ for the purposes of calculating the grant) can include overtime, commission and fees.  Please note that benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should not be included in the reference salary. Further, Apprenticeship Levy and Student Loan payments should continue to be paid as normal and the grant will not cover such payments. With respect to the £2,500 cap, Government guidance has clarified that reimbursements will be pro-rated if a claim only relates to part of a pay period.  For example, if the grant is only being claimed for a one and a half months, the grant would be capped at £3,750 (£2,500 x 1.5) plus the relevant employer’s NICs and pension contributions. 
  • Salaries on recommencement of production.  As a general rule, employers must stick to what has been agreed; Pact advised that employers should not look to renegotiate (lower) an employee’s engagement fee on recommencement of production.
  • Childcare and Shielding.  Government guidance has clarified that an employee may be furloughed if caring responsibilities resulting from Covid-19 has resulted in their inability to work.  An employee who is shielding in line with public health guidance (or needs to stay at home with someone who is shielding) can be furloughed if they are unable to work from home and would otherwise need to be made redundant.

Crew and Artist Termination & PACT / Equity conversations

Under the Pact/Equity Agreement, after 21 days of suspension has elapsed, producers may: (i) terminate an individual’s services; (ii) hold the individual on first call; or (iii) hold the individual on second call.  Second call is most likely in the current circumstances (since many actors are not working at present).  Second-call payments are relatively modest: around £105 per week.   

Pact and Equity discussed mechanisms to provide actors with increased payments during this period of uncertainty but which would not impact too heavily on producers’ cashflows.  Pact suggested that production companies might, at the end of the 21-day suspension period, advance to actors 25% of future income to keep them on first call (thereby securing a better weekly wage for actors during this very uncertain time).  This proposal was refused by Equity on the grounds that advances against future earnings would make their members work for lower fees in the future. 

Currently, at the end of the 21-day suspension period under the Pact/Equity Agreement, it would be better from a cashflow perspective for producers to either terminate an actor’s engagement or place actors on second call.  It would be advisable for producers to speak to agents on a case by case basis – for example, agents may permit producers to negotiate outside of the collective agreements in order to find a workable balance.

Insurance

  • Position of insurers.  Pact advised that the position of insurers is not clear, not least since brokers take varying approaches to different claims.  What is clear is that we are in a force majeure situation.  As many will be aware, some insurance policies exclude diseases.   Pact reported that the BBC’s insurance terms went further, excluding all diseases relating to humans and animals.  Pact queried this with the BBC and the BBC have now adjusted their insurance policy (Quartz) so that insurance will, depending on the circumstances, apply to certain claims arising as a result of Covid-19.  Pact advised producers to read insurance policies carefully.  In many cases it is likely that there must be clear instructions from the Government to go back to work for certain production costs to be covered under insurance.
  • Civil authority claims.  Before bringing a civil authority claim, the issues should be discussed with production’s insurance broker since it must be clear that the claim has been brought as a direct result of Government rules (rather than non-binding Government advice).  A claim’s success may depend upon what stage of production the suspension took place (i.e. if it was the result of government-imposed rules or advice).  Pact advised that the cap on civil authority claims tends to be in the low hundreds of thousands but direct cost to restarting production after suspension should be covered. 

Socially Distant Production?

  • Can production continue if social distancing is observed?  Filming is harder and harder, if not impossible in many cases, given the Government’s current lockdown measures (which all broadcasters must also comply with).  Pact urged production companies to follow the Government’s guidance (now law).  Given current restrictions, all forms of filming on a set appear impossible however some elements of production are still taking place, for example certain post-production.  Assembly in an edit suite will be difficult but other elements of post can continue (remotely) and many post-production facilities are still open.  Pact urged production companies to speak to post houses to make sure that those elements of production that can be carried out are continuing.

Miscellaneous

  • Existing tax credit payments.  Pact will continue to lobby the Government to expedite payments of existing tax credits.
  • Hardship funds.  The BFI and The Film and TV Charity have established a “Covid-19 Film and TV Emergency Relief Fund” to help support members of the creative community.  A link to more information is here.
  • IR35.  Pact has asked the Government to extend the IR35 holiday beyond next year.  Pact advised that it may be difficult to persuade the Government to make such an extension however since Government priorities are on other things at the moment, we may well see delays in the implementation of IR35.  Pact is updating its HMRC guidance for those behind and in front of the camera (regarding engaging freelancers and their status).

Astrid Bulmer, Associate, Simkins LLP