Early this year a metaphorical can of worms was opened when Ed Lester, head of the Student Loans Company, was found to be channelling his six-figure pay packet through a limited company, avoiding a chunk of tax in the process.
The scandal soon spread across the public sector, with the Department of Health coming under particular scrutiny. A Treasury investigation eventually found a total of 2,400 public sector workers who were avoiding tax through a limited company despite being de facto employees of their respective departments. As veteran freelancers will know, this is exactly the type of behaviour the controversial IR35 legislation was introduced to stamp out.
The Treasury review into public sector limited company abuse included every public sector department in Whitehall, but not local authorities or the BBC. After an internal review overseen by Deloitte, the BBC have now published their conclusions on the use of freelancers and personal service companies within the organisation.
The BBC begins by pointing out how important freelancers and contractors are to their operation. According to the report the BBC employed no less than 64,447 freelancers in 2011-12, in various roles from camera operators to dancers. This is how the report summarised the BBC’s dependence on freelancers:
“The BBC, like the rest of the broadcast industry, needs the flexibility to engage people on a freelance basis because it gives us the ability to respond to changing audience demands, stay topical and bring in key talent and specialist expertise with a speed and at a price which employment policies and practices would not allow.”
The report concludes that there was no intention within the BBC to avoid paying National Insurance Contributions or other tax by employing freelancers who operate through their own limited company (in fact the BBC’s Chief Finance Officer sued the Daily Star for claiming so). Unlike the majority of the limited company usage within Whitehall, which was done purely for the purposes of avoiding tax, the majority of the BBC’s freelancers are legitimately self-employed.
Nevertheless, the BBC is planning their own “employment tests” to determine whether long-term freelancers should in fact by on BBC payroll. According to the report, the BBC is:
“[Working] with HMRC to develop objective and consistent criteria for the tax treatment of on air talent to give us the confidence to engage these individuals directly as sole traders where they meet the criteria without the risk of misclassification set out above.”
When this scandal first erupted, the PCG voiced concerns that it could lead to a “contractor witch-hunt” as self-employed individuals from all sectors would be subjected to added scrutiny for legitimate usage of a limited company. It would appear that this is, thankfully, not the case. The vast majority of the BBC’s freelance workforce will be able to keep working as normal, although the BBC say they have identified 469 on-air freelancers working through limited companies which need review.
You can read the review summary here (PDF).
Photo by Andrew Wilkinson