Tax officials tasked with enforcing the IR35 legislation must be rubbing their hands at some of the BBC’s highest paid presenters following a probe by a Sunday newspaper.
According to the investigation, 20 of the corporation’s long-serving journalists have set up service companies that result in them paying less tax than if they were employees.
Although the practice of operating as a freelancer is not new in media circles, top earners at the BBC were found to have been encouraged to make the set-up to avoid the 50p in the £1 tax rate.
The personal tax rate, due to take effect in April, was apparently the sole motivation of the BBC’s decision to tell its presenters of the benefits of working as a freelance rather than as an employee.
If a presenter went freelance, not only would the BBC save the cost of paying National Insurance, levied at 12.8 per cent of salary, but the individual would also pay 21p in the £1, under the more favourable corporation tax regime.
Although there is an additional dividend levy for extracting further money, the arrangement would result in a tax saving of £106,900 for Jeremy Paxman and of £89,105 for Fiona Bruce, from April.
These are just two of the names on a long list of BBC regulars cited in the investigation for using tax-efficient structures, meant for the genuinely self-employed, to channel their earnings.
However, contractual restrictions make it difficult for most BBC presenters to pick up enough outside work to be deemed self-employed in the eyes of HMRC, reported The Sunday Times, which ran the probe.
For both the BBC and its presenters, these clauses may prove problematical if HMRC investigates, because the IR35 legislation prohibits employees posing as freelancers for tax purposes.
But responding to the Sunday broadsheet, the BBC said that its arrangements with presenters were “legal” and “proper”, and that the broadcaster had no place ensuring “tax receipts are maximised.”
It is not the first time that the BBC has risked the wrath of the Revenue: a former BBC executive reportedly said tax officials had been in touch about false self-employment already.
According to the unnamed source, the officials said some arrangements the BBC had in place with its presenters amounted to a “tax dodge,” signalling HMRC deemed IR35 to apply.
At the time, the Revenue apparently advised the BBC that the affected workers should each set up their own independent service company, but it is this independence that the Sunday Times’ investigation is now questioning.
Even if the presenters have worked on another programme, employment case law indicates that this alone would not qualify the company, or its owner, as being truly independent if the programme maker, the ‘end client’, was the BBC.
As a result, the 20 BBC presenters identified as using commercial structures that result in tax savings are likely to be searching their portfolios for work they have carried out, while using those structures, outside of the corporation.
If the number of clients other than the BBC is low, the presenters might consult IR35 lawyers to find other signposts towards their self-employment, paving the way for such experts to compete with HMRC in uncovering the day-to day working realities of the presenters.
Oct 5, 2009
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