MPs reignite PSC tax-saving row with BBC probe

A panel of MPs has reignited the row over personal service companies both at the BBC and in the public sector more widely, by saying their discovery of 25,000 off-payroll contracts at the corporation smacks of tax avoidance.

The Public Accounts Committee said that, while it cannot gauge the full scope of “inappropriate” PSC usage outside of Whitehall, its discovery at the BBC arouses “suspicions of complicity in tax avoidance.”

It therefore welcomes a vow by HM Revenue & Customs to carry out a risk-based review of the 25,000 contracts signed off by the BBC, on top of the 2,400 cases at other public outfits thrown up by Danny Alexander’s Treasury’s review.

Based on HMRC figures it cited showing the number of investigations under IR35, the legislation designed to stamp out tax avoidance by intermediaries (such as a PSC), is falling, the PAC also backed a new pledge by the taxman to carry out 230 IR35 enquiries a year.

Seeming to suggest that those enquiries may prove fruitful, at least when targeted at Broadcast House, the BBC accepted that many of the fingered contracts covering its presenters “could share the same features as typical PAYE employment contracts.”

This admission will surely interest HMRC, as IR35 applies only if an individual is working for the end-user where the relationship - if it were not for the imposition of the limited company, would be one of employment.

“It must avoid the practise of using off-payroll arrangements for staff who should be on the payroll,” enforced the PAC, alluding to IR35, reflecting on its discovery at the BBC and addressing the public sector.

As a result of such off-payroll arrangements that make use of intermediaries, the committee said it “suspects” that “many individuals and employers in local government and in the health service do not pay their proper tax and national insurance contributions.”

In response, the BBC said the 25,000 contracts would be subject to its own internal review which, according to the PAC, must spell out “how it [the BBC] will gain assurance that its staff pay the right level of income tax and NIC.”

New rules for public sector off-payroll workers published by the Cabinet Office, alongside guidance on a process for end-users to receive assurance from those off-payroll that their tax arrangements are compliant with IR35, already appear to meet the committee’s demand.

And despite its demands on the BBC, the PAC recognises that “ultimately, whether those paid off-payroll are paying the right amount of tax is dependent on HM Revenue & Customs”, yet it says the assurance process reflecting the off-payroll framework is incomplete.

The Treasury has not defined what constitutes the 'exceptional circumstances' under which an Accounting Officer may still approve the use of personal service companies,” said the MPs.

“There is [therefore] a risk that Treasury guidance may be interpreted inconsistently across the public sector and the mistakes of the Student Loans Company case could be repeated.”

However, just as the Treasury has been attacked for damaging the uptake of public sector contracts since the off-payroll changes began, the PAC has also drawn criticism for its findings.

In response, the Freelancer and Contractor Services Association said: “Once again it is disappointing to see a respected committee like the PAC criticise the use of freelancers and contractors in public sector organisation such as local government, the NHS and the BBC

“As we have made clear many times before, there is nothing wrong or inappropriate for any organisation, including public sector bodies to engage contractors at any level, if done properly, for the right reasons and where those concerned pay appropriate taxes. “

Stuart Davis, FCSA chairman added: “We would like to remind the committee and those who are criticising these arrangements, that freelance contracting work is undertaken by thousands of workers up and down the UK and is a legitimate and valuable way of working that benefits organisations and contractors alike.”



9th October 2012

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