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Contractor Corner

Welcome to Contractor Corner, the series written specifically by Qdos Contractor for accountants with clients who are contractors

Select committee: BBC ‘like a rogue company’

In March, the parliamentary select committee session 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.

BBC 6Music presenter Liz Kershaw, who has worked with the BBC since 1987, reported she had been advised by the BBC Legal Affairs department 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, advice they said had been given to them by HMRC (the Inland Revenue at the time). Kershaw confirmed this was against the 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: “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 1 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.”

Here it seems the BBC were either poorly informed being dishonest with their freelance journalists about advice they said they’d been given by HMRC. Under the then legislation (prior to April 2017), if the BBC engaged sole traders it would be the BBC’s responsibility to determine their correct employment/self-employment status and make sure taxes were paid correctly. It would also have been the BBC’s liability to pay any missed taxes and penalties if they had made an incorrect determination of self-employment when HMRC later determined the freelancer should have been employed.

It could therefore be seen that the BBC sought to reduce this huge financial risk to the corporation, given the number of freelancers they engaged, by compelling all sole traders to open personal service limited companies. Because at that point, the responsibilities for determining employment status would switch and then lie solely with the presenter’s limited personal service company instead of the BBC. So these journalists took on a significant risk 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 were being investigated by HMRC over their employment status.

The tax lawyer Jolyon Maugham QC of Devereux Chambers also spoke to the select committee. 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 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 40%. Given the BBC engages around 3,000 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, at a loss to the Exchequer.

Damian Collins MP (Con), chairing the committee, appeared horrified by the many stories of distress, financial loss, insecurity and one case of attempted suicide, and said that the BBC had behaved “well below what we expect of the BBC and had behaved more like a rogue company”.

HMRC tribunal win; BBC presenter to pay £420k

BBC presenter Christa Ackroyd became the first contractor to lose a case against HMRC in seven years, when a UK tax tribunal ruled in the Revenue’s favour and ordered her to pay £420,000 in tax liabilities and penalties, covering tax years 2006/07 to 2012/13.

Ackroyd is one of many BBC journalists who have had their IR35 status investigated by HMRC in recent months. She was a TV journalist who had previously worked for ITV co-presenting ‘Calendar,’ from 1990-2001. In 2001, she was offered a contract by Yorkshire BBC to present ‘Look North’.

The court found that Ackroyd was really an employee of the BBC for tax purposes, and not self-employed because:

  • CAM Ltd (her PSC) did not have complete control over the services she provided. It was determined that the BBC had control over editorial content.
  • Ackroyd was restricted from working with other clients and she was obliged to perform services in addition to the BBC being obliged to pay fees to CAM Ltd on a monthly basis.
  • CAM Ltd did not have a right of substitution as her personal service was a requirement of the contract, although the judge deemed this point irrelevant due to the nature of the services being provided.
  • It was established that a mutuality of obligation existed.

The judge accepted that Ackroyd had not intentionally avoided paying the correct taxes and agreed that the IR35 legislation is “far too complex for your average freelancer or subcontractor to be able to navigate alone and should therefore be revisited and possibly revised for clarity.”

We shall wait to see whether the government listens to the many calls to simplify and clarify the controversial IR35 legislation in light of such cases.

  • Terri O’Sullivan is Contracts & Status Specialist, Qdos Contractor

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