Following the recent tax furore, none more so caused than by the Public Accounts Committee's (PAC) report on its findings on off-payroll arrangements in the public sector, the BBC now looks set to reclassify some of its freelance workers and force them on to the books.
According to the Daily Mail, some of the Beeb's top presenters will be among a number of freelancers offered employment contracts in an attempt by the broadcaster to quell the tax row over its use of contractors.
The BBC has been accused by both the media and politicians of being complicit in tax avoidance after it was revealed that it engages 25,000 freelancers. This prompted BBC Trust chairman, Lord Patten, to commission Deloite to carry out a full review of its arrangements with a view to clearing up 'any suspicions.'
As a result of the review a number of freelancers will be forced onto the payroll and in so doing could suffer pay cuts of around 40% to cushion the blow of the BBC having to stump up Employers NIC. All this after the chairman, speaking about the use of PSCs, declared, “This is not, I repeat not, a way of encouraging, helping, or conniving at the avoidance of tax.”
Performers at the BBC have been angered by being labelled tax avoiders after being told by the Corporation to form personal service companies.
It is believed that the likes of Jeremy Paxman and Fiona Bruce will now be given the opportunity to become part of the BBC staff.
Lord Patten said, “I'm sure we will also want more regular information going to the Revenue on service companies so they can be absolutely clear on the tax liability.”
It is clear that this latest move by the BBC is a public relations exercise, confirmed by the Daily Mail's reporting that sources stated it was designed to 'reflect public feeling' and would be 'cost neutral.'
Meanwhile, the Association of Professional Staffing Companies (APSCO) has recently met with officials from the Treasury and HMRC to voice its misgivings about the new Treasury guidance on 'off-payroll' arrangements, which it believes may also destabilise contracting in the public sector.
Like many involved within the freelancing sector, APSCO expressed its concerns about the disproportionate weighting of some of the scoring of the twelve business entity tests, which are to be used as the barometer for gauging a contractor's IR35 status.
APSCO also conveyed reservations about the ability of those, whose responsibility it will be within each public sector organisation, to properly assess the employment status of contractors and how much information they would be passing on to HMRC because of their restricted capabilities. In response to this point HMRC said that they would only expect to receive details of an engagement in circumstances where the contractor fails to provide the necessary assurance.
The Revenue confirmed that those 2,400 engagements identified in the Treasury review of May of this year are currently being risk assessed.
Although Departments will be required to ensure that contracts include clauses that permit them to seek assurances about a contractor's tax and NIC obligations, it appears that the Treasury will not expect this in every case. The reality however is likely to be that every contract will include such terms as Departments take a 'belt and braces' approach to avoid being penalised.
APSCO were happy that both HMRC and the Treasury considered that not all 'off-payroll' arrangements amounted to tax avoidance but said that there was still a long way to go in convincing politicians of the same.
The recruitment organisation's body were also of the opinion that HMRC's contract review service might be 'a cost-effective and quick solution' in determining a freelancer's status.
The Treasury guidelines will be reviewed in April 2013 but this is likely to concentrate on enforcement rather than the numbers of contractors forced to operate IR35.
How tax efficient are PSCs?
Last week, head of taxation at the Association of Chartered Certified Accountants (ACCA), Chas Roy-Chowdhury, sought to dispel the myth currently being expounded by politicians and the media, that PSCs are a tax avoidance mechanism, by writing an article for the Business News section of the BBC website.
Mr Roy-Chowdhury sought to demonstrate that someone earning £200,000 per annum was no better off having this paid via a PSC rather than as an employee by setting out a simple illustration:
(A) PSC
| Gross income | £200,000 |
| Less: corporation tax @ 20% | -£40,000 |
| Income distributed as a dividend | £160,000 |
| Less: nominal rates of tax on £160,000 (32.5 & 42.5%) | -£34,241 |
| Net income | £125,759 |
(B) Employee
| Gross income | £200,000 |
| Less: income tax (20/40/50%) | -£77,316 |
| Less: Employees NIC | -£7,337 |
| Net income | £115,347 |
At first glance it appears that a person would be £10,000 better off working through a PSC rather than as an employee but the calculation does not take into account business overheads and the article suggests that, in some cases, a contractor could be worse off. The real winner, suggests Roy- Chowdhury, is the engager who, by choosing to use a contractor in the above example, would make a saving in Employers NIC of £26,567.
The article concludes that for some there is a genuine tax saving but, for others not.
From now, all the top performers will be on gold-plated pension from BBC. This will increase the license fee.
The question is, Who is the real winner ?
None.
Strange that Roy-Chowdhury maks no mention of Employers NIC. Option B has the same gross payment from the company but a higher cost.
Also very strange that no mention is made of VAT. The BBC will be paying VAT on fees which I’m pretty sure it cannot relieve. So it is saving more than it will pay in Employers NIC. Also gross revenue to the HMRC will fall in the employment situation.
You get the smae situation in insurance & banking. HMRC are shooting themselves in the foot.