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Not prepared to play the Revenue's role: Theatrical actors are challenging a decision to tax them at source

TOMORROW morning, the actor Alec McCowen will begin to play his part in one of the longest-running performances in modern theatre. But this time, the star of the Royal Shakespeare Company will be playing himself - a theatrical actor who found that he was suddenly put on PAYE for his stage earnings.

With Samuel West, who is currently playing in Tom Stoppard's Arcadia at the National Theatre, McCowen is one of two guinea pigs put up by Equity, the actors' union, to test current Inland Revenue practice in front of the Special Commissioners next week.

People who went to see him in recent years in the hugely successful Dancing at Lughansa and Someone To Watch Over Me were probably too absorbed by his performance to think about how he was paid.

Had they known the facts, they would have been surprised. Until 1991, he received all his stage earnings through a limited company that he had set up. In that year, he decided to start receiving his earnings direct, believing that he would be taxed under Schedule D as self-employed. But the Inland Revenue had a surprise for him: even on the shortest theatrical contracts, he would be subject to PAYE. This affects not just his pay but also any expense allowances he receives from the theatre. If he received all his income from the theatre, he would not be able to set off against tax the long list of expenses that actors and actresses find necessary to keep themselves up to date, beautiful, and in work - Equity membership, scripts, mail and postage, theatre tickets, make-up, extra tuition and photographs.

McCowen is one of several thousand actors who have been put on to this harsher regime since the Inland Revenue toughened its approach to the theatre in 1990. Until then, all actors were taxed on Schedule D. But from that time, stage actors were put on to Schedule E unless they had already been taxed under Schedule D for three years.

West, McCowen's co-star, is typical of the thousand or so drama school students who now graduate to the theatre each year to find themselves taxed under Schedule E.

Valentine in Stoppard's Arcadia and Leonard in the film Howard's End, West has enjoyed rapid success in the five years since he began treading the boards after graduating from Oxford. Financially, he has been less of a success, since all his theatrical earnings are taxed at source. The Inland Revenue is not willing to discuss the case, but the clampdown on stage actors is part of a general move to put as many freelancers as possible on to Schedule E - a far easier schedule for the Revenue to control than Schedule D.

The issue has been a subject of discussion between Equity and the Revenue for more than 20 years. It could enjoy a long run - all the way to the House of Lords.

In the meantime, Equity is deeply concerned that actors and the theatre in general will suffer irreparably. Young actors are not well paid. The Equity weekly minimum outside London is pounds 186, with a subsistence allowance of pounds 49. Actors caught in the Revenue's net will find that their subsistence allowance is taxed at source, leaving them with less than pounds 37 a week for bed and board.

Peter Finch, head of theatre at Equity, believes that provincial and children's theatre could suffer from a shortage of experienced actors. 'There will always be younger people available who are starting out in their careers,' he said. 'But it's the more experienced actors who would have been quite happy to work in a repertory theatre in Cheltenham or Salisbury on Schedule D status who would now rather stay at home and wait for the next TV job.'

(Photograph omitted)