The Digital, Culture, Media and Sport select committee session on the BBC’s use of freelance contracts and presenters’ use of personal service companies, with evidence from Liz Kershaw, Kirsty Lang, Paul Lewis and Stuart Linnell, Damian Collins MP (Con) as Chair.
At a time when the BBC is still reeling from the negative focus on its gender pay gap, and from the tax tribunal which determined BBC presenter Christa Ackroyd was not genuinely self-employed, the BBC finds it is under scrutiny again regarding the way it deals with its freelancer journalists’ pay and employment terms.
On the 20th March the parliamentary select committee session chaired by Damian Collins MP (Con), listened to testimony from four BBC journalists who report having been treated ‘without dignity’ by the legal department of the BBC and were ‘forced’ or ‘intimidated’ into setting up personal service companies in order to continue working for the BBC. The BBC were also invited to attend but took the decision not to.
The BBC 6 Music presenter Liz Kershaw, who has worked with the BBC as a national presenter since 1987, reported she had been advised by the BBC Legal Affairs department via email in 2009, which she presented to the committee as evidence, that in order for her to continue to work for the BBC she must set up a personal service company into which the BBC would pay her.
Kershaw confirmed this was against the independent advice she took from her accountant who told her there was no benefit to her ceasing to be a sole trader and operating under a personal service company.
In an email from December 2009, the BBC informed her that after being advised by the Inland Revenue of the correct way to operate going forward she would have to set-up a personal service company. “Following a review by the Inland Revenue of the commercial sector of radio presenters earlier this year, and a subsequent modus operandi which has been issued (and is to apply throughout the industry to radio djs), after the 1st January the BBC will only engage on air talent for long term commitments of engagements if their services are provided through a service company (or partnership). Otherwise we will only be able to contract presenters on an ad hoc basis with no guaranteed commitment.” In a later email they said “…we can only offer the 6 Music freelance role via company or partnership.”
In Aug 2012, the Crown Commercial Service issued guidelines for public sector bodies engaging self-employed workers which stated that workers would have to provide assurance of their self-employed status. The BBC’s reaction to this seems to have been to continue to advise workers to set up their own limited company because this would demonstrate that they are ‘in business on their own account.’ In another later email to Kershaw the BBC legal department said “The BBC needs to make sure that if someone is being employed on a freelance contract that they really are a freelancer i.e. they are a business working for a number of clients. The BBC does not have sight of all the employment activities of an individual and is therefore not in a position to assess whether that person is a true freelancer or should be staff. Therefore, the BBC, in agreement with the Inland Revenue, now requires freelance radio presenters, when contracted on a long term freelance basis, to be contracted via a service company. This ensures that the freelancer has/is a business in their own right.”
For anyone who understands HMRC’s IR35 tax legislation which has been in operation since 2000, this is not good advice.
It seems that the BBC sought to reduce their risk to the corporation, given the number of freelancers they engaged, by compelling all sole traders to open personal service limited companies, because prior to April 2017, the responsibilities for determining employment lay with the presenter’s personal service company instead of the BBC. The Presenters themselves took on a significant risk, in that they could later find themselves with a huge bill for unpaid taxes and penalties from HMRC. Which is now the case for an unfortunate few. In 2016 it emerged that about 100 BBC presenters are being investigated by HMRC in relation to their employment status.
The tax lawyer Jolyon Maugham QC of Devereux Chambers also spoke with the select committee. There he gave his opinion that it seems implausible that HMRC would have told the BBC to have all their freelancers set up personal service companies. Maugham QC put it further by saying, if one were to forget their moral and ethical obligations towards their personnel, one would always encourage their sole-trader freelancers to set up personal service companies so that they could avoid the potential risk of an IR35 investigation and any potential liabilities. Maugham QC gave a back-of-the-envelope estimation on the savings made by the BBC by engaging freelancers (and not employees on staff) could be up to 25%. If you included the savings made by NICs this saving could be up to 40%. Given the BBC engages around 3000 personal service company freelancers and has done so for many years, we could be talking about tens of millions of pounds in savings for the BBC and at a loss to the Exchequer.
The BBC has previously defended the use of personal service companies by saying it added much needed ‘creative flexibility’ to their personnel. Maugham QC quizzed how that conclusion was raised. Giving the example of Sports Direct staff on zero-hour employment contracts on minimum wage, there was much flexibility available to the personnel there. Having a personal service company does not necessarily give any more flexibility than an employment contract might.
Maugham QC offered in defence of the BBC that while it does seem, given the evidence presented, that the BBC had coerced their personnel into setting up personal service companies, those freelancers could have chosen to apply PAYE and been employees of their personal service companies rather than declaring themselves as self-employed. It was this determination of self-employment status that was problematic for HMRC. Maugham QC further suggested that it appeared many of the presenters had been given poor tax advice, and that employment status and the IR35 legislation was not easy to understand. The presenters trusted the BBC as a reputable corporation, they trusted the tax advice from their accountants, and HMRC took many years to tell these presenters they were operating incorrectly. For this, Maugham QC feels HMRC should accept some responsibility.
A point well made during the hearing, and that many contractors working in the public sector currently could possibly relate to, was the discussions around HMRC’s infamous CEST (Check of Employment Status for Tax) tool.
Changes to the IR35 legislation within the public-sector were implemented in April 2017, and now place the burden for determining IR35 status for all personal service company freelancers onto the public sector body, i.e. the BBC. HMRC introduced an online test system called the CEST tool to help public sector bodies determine the employment status of its workers. After this the BBC continued to encourage the use of PSCs (so continuing to avoid giving employment benefits), but if the CEST tool provided an inside of IR35 opinion or an indeterminate conclusion, taxes and NICs had to be deducted at source from the workers’ pay by the BBC.
The CEST tool became something of a laughing stock to all, with Liz Kershaw stating having been asked quite seriously, whether she provided her own plant machinery! It was unanimously agreed by the BBC presenters giving evidence that the CEST tool was not fit for purpose and seemed to have been set up by HMRC as a one-size-fits-all questionnaire, when the reality is that one size does not fit all. People in the media work quite differently to people in the construction industry and also differently from other industries. It was reported that in 97% of the BBC cases the CEST tool provided an inside or indeterminate opinion.
The journalists Paul Lewis, Liz Kershaw, Kirsty Lang, and Stuart Linnell all gave moving testimonies of untold worries. It has been reported that one presenter had even attempted suicide. Given that many had lost out on employment benefits, it was stated that being self-employed with a personal service company had not been a benefit to the presenters at all.
It may also be interesting to note that all those giving testimony and each of the MPs who were receiving the testimony were agreed, that it seemed quite unfair that while HMRC had now deemed these freelancers as employed for tax purposes, no employment rights would be afforded to them.
Damian Collins MP (Con) chairing the select committee appeared horrified by the many stories and said that the BBC had behaved “well below what we expect of the BBC and had behaved more like a rogue company.”
There’s a lot to take from what was presented at the select committee and we will wait to see if the MPs go on to take action. If one was to make a prediction, at the very least this could mean a delay in implementing into the private sector the same IR35 changes in determination responsibility that were put in place for the public sector in April 2017. Much was said about the problems with the CEST tool, and the difficulties in determining employment status in general, so whether this results in a parliamentary conversation to simplify the legislation is anyone’s guess.
What we do know is that the BBC still has a lot of explaining to do. They have so far agreed to an independent investigation to discuss whether they would contribute to those presenters who were caught by IR35. However, the BBC is only considering making a partial contribution to their employer’s NICs, so clearly the BBC still does not consider it owes the presenters much more in terms of any employment benefits or compensation. Whether they are pressured to do so later, is yet to be seen.