A recent report by the National Audit Office (NAO), ‘Investigation into the BBC’s engagement with personal service companies’, reveals that the BBC happily allowed its presenters to carry on using their own limited companies in the knowledge that they were most likely to fall foul of IR35.
Following concerns raised by Parliament and individuals employed by the BBC, the NAO launched its investigation into the corporation’s policy of hiring freelancers, particularly those hired through PSCs.
Hiring freelancers is common practice in the media industry as it provides broadcasters the flexibility to make changes quickly according to the needs of programming and audience.
In 2017-18, the BBC engaged around 60,000 freelancers which included actors, entertainers and off-air workers, such as camera operators. Of these 60,000, 5,145 PSCs (roughly 50% on-air roles and 50% off-air roles) had contracts worth an aggregate total of £84 million.
In 2004, HMRC reviewed the employment status of 100 of the Beeb’s news presenters and deemed them to be employed for tax purposes. No surprise really though, given that the BBC had imposed increased editorial control over the presenters. Such control was sufficiently significant to hand an ‘employed’ status on a plate to the Revenue. Whilst the PSCs engaged by the corporation weren’t affected by this opinion, HMRC did warn the BBC that they might be back to carry out IR35 investigations.
Wanting to minimise the impact of the risk of misclassifying employment status, at the point a freelance news presenters’ contract was up for renewal, the BBC offered them a choice of either moving onto an employment contract or to continue freelancing via a PSC. According to the Beeb, the majority elected to carry on as freelancers and consequently formed their own limited companies. At this point the BBC were complicit in signing the IR35 death warrants of these contractors as they knew, or certainly should have known, that these freelancers would fail the two major tests of status, i.e. control and personal service, but still allowed these people to sleepwalk into the jaws of IR35. This, of course, suited the BBC as they were able to divest themselves of the tax risk.
Historically, the BBC have engaged TV and radio presenters on a self-employed basis, either as sole traders or through PSCs.
In 2008, HMRC published guidelines for the radio industry but the BBC were concerned about its lack of clarity leading them to adopt a policy of hiring freelance radio presenters via PSCs where the contract lasted longer than 6 months and/or was worth £10,000 p.a., unless they produced a written determination from HMRC confirming their self-employed status. Unlike news presenters, they were not given the option of an employment contract. This same policy was rolled out to TV presenters and was applied to all new and renewable contracts.
Following the furore caused by Ed Lester, in 2012 the Public Accounts Committee took evidence from the BBC over its use of PSC’s and produced a report that:
The BBC commissioned accountancy giant, Deloitte, to review its freelancer engagement model which produced a number of recommendations, notably that:
After a period of liaison with HMRC, the BBC implemented its new status test in November 2013, reassured by the Revenue that, as long as the BBC used it as intended and with the correct facts, then the status results thrown up for a TV presenter would pose a low tax risk. During the period 2013-14 to 2016-17, the new test confirmed that more than 90% of on-air roles were self-employed and, as a result, there was no significant reduction in the number of PSCs being engaged. The exception to this was all of the Beeb’s news presenters, who had been moved onto on-air talent (OAT) employment contracts since 2004.
There have been a number of BBC presenters who have recently spoken out about the corporation’s lack of care towards them. They allege that the BBC forced them down the PSC route to be able to continue working as self-employed for the organisation, even when they said they didn’t want the hassle of running their own company. They claim that there was little explanation of the BBC’s change in preference, and that most of the communication on the matter was verbal, leaving them confused and unhappy.
In an e-mail to freelancers in June of this year, the BBC admitted that they had not given them as much choice as they would have liked. However, the feeble excuse it used for railroading presenters down the PSC route was that it was not best placed to assess their status because they would have more knowledge of their own circumstances and the multiplicity of engagements and could judge their status more exactly.
The public sector changes in April 2017 only affected the BBC and Channel 4 in the media sector. However, the changes had a greater impact on the Beeb as it makes much of its own content and hires many more contractors. In contrast, Channel 4 commissions its content from independent, private sector companies and therefore hires fewer freelancers, who tend to be in back-office functions, such as training and marketing.
In 2017-18, the BBC engaged 60,000 freelancers, of whom 45,000 were on-air freelancers and 2,600 of these operating via a PSC. According to the BBC, 42,000 of these roles are clearly self-employed as they either have ‘show and go’ roles, e.g. a one-hour interview on a TV or radio programme, or they are actors or entertainers whose status is accepted by HMRC. Of the remaining 3,000, approximately 2,000 individuals are non-resident in the UK or are covered by the TV, film and production guidance notes. This left 1,000 on-air roles that required determinations using HMRC’s online ‘Check Employment Status for Tax’ tool, CEST. This figure reduced to 663 following additional guidance from the Revenue regarding the services of sports commentators and pundits, some entertainers, short-term factual specialists, talent show judges and panel show guests, who were found to be self-employed. The vast majority, 92%, of the remainder 663 were deemed ‘employed’ by CEST.
By May 2018, the BBC estimated that of some 800 presenters, 300 of whom were working through PSCs, a further review of their status was needed as they were at risk of being challenged by HMRC.
As a result of the imposition of the ‘off-payroll’ rules the BBC estimate that it spent £1.5 million in readiness for implementing the rules from April 2017.
In March 2017, the Beeb asked HMRC for a six-month grace period during which time it would not have to deduct PAYE tax and NICs, but this was quite correctly denied. So, the BBC made payments on account during the period April – September 2017, totalling £8.3 million so as to avoid interest and late payment penalties, whilst they were still trying to determine the status of some sole traders and contractors. Once the corporation had satisfied itself it had made the correct determinations, it began recouping the tax and NICs from the workers. The original aim was to reclaim the £8.3 million by March 2018 but following complaints from all affected workers, the BBC relented and extended the time period. Some presenters even contested the BBC’s legal right to make such recoupments, but the corporation disputed these challenges.
In cases where an individual’s status changed from employed or indeterminate to self-employed, the BBC repaid any tax and NIC it had incorrectly deducted.
In May 2015, the BBC understood that 23 current and former BBC presenters were under enquiry but by the autumn of that year this figure had risen to 100. There still remains the same number of open investigations, all relating to periods pre-April 2017, and the majority having been opened before April 2017 too.
In June 2018, the Beeb announced an ex-gratia payment of up to £500 to anyone earning less than £45,000 p.a. as a contribution towards additional book-keeping fees arising as a result of the IR35 compliance reforms. By August, it had paid out almost £12,000 on 33 claims.
Needless to say, the BBC’s contemptible behaviour has left a very sour taste in many freelancers mouths.
In March of this year, the BBC announced its intention to set up an independent resolution process under the supervision of the ‘Centre for Effective Dispute Resolution’. The aim being to determine the right approach in pre-April 2017 cases where PSCs believe the BBC should bear some of the IR35 cost because the corporation had misled them or not informed them properly. Whilst this process has still not been finalised, there is talk on the grapevine that the BBC may stump up the cash in the 100 outstanding IR35 cases.