The National Audit Office's 'Investigation into the BBC’s engagement with personal service companies' reveals that the BBC thinks many of its workers have a special employment status and, it has financially compensated some freelancers for their extra costs of IR35.
The NAO investigated 'the nature of, and associated issues related to, individuals hired by the BBC on a freelance basis, particularly those hired through personal service companies (PSCs).'
Historically, the BBC had a policy of engaging staff via PSCs. Following the introduction of the Offpayroll Working rules in 2017, it has both changed its policy in relation to hiring freelance on-air talent and the way in which it tests employment status. HMRC’s CEST tool has sometimes provided results different to the outcome of the tests historically used by the BBC.
NAO key findings
- The BBC hires thousands of freelancers every year, covering a number of different roles both on-air and off-air
- Before 2013, the BBC based its decisions on whether roles were employed or self-employed for tax purposes on its understanding of HM Revenue & Customs’ (HMRC) guidance and, for on-air presenters, of industry practice
- From November 2013, the BBC began to use a new test & policy for assessing the employment status of freelance television presenters and radio news presenters offering the option of one of two new on-air talent (OAT) employment contracts. All its news presenters who had previously been engaged through PSCs moved onto an OAT employment contract. As at March 2018, the BBC had 90 OAT contracts.
- In April 2017, the government introduced the Offpayroll working rules for public sector employees. This transferred responsibility for determining the employment status for tax purposes of people hired through PSCs from PSCs themselves to the public sector bodies hiring them
- From June 2017 use of HMRC’s CEST tool generated a different employment status for tax purposes in many cases, compared to the BBC’s use of its own assessment test and HMRC guidance
- Between April and September 2017 the BBC paid £8.3 million of tax on account to HMRC to avoid any penalty charges for not paying tax that was potentially due.
- By May 2018, the BBC estimated that some 800 presenters, nearly 300 of whom were hired through PSCs, warranted further review as they were at risk of being challenged by HMRC. This could involve tax arrears for the BBC and for the PSCs. According to HMRC, as at October 2018, there were about 100 open investigations into BBC-related PSCs. All open cases relate to tax years prior to 2017 and the vast majority of these were opened prior to the reform.
- By June 2018 the BBC had assessed 663 on-air freelancers using HMRC’s tool and 92% received an ‘employed for tax purposes determination’. In contrast, prior to this, the BBC assessed the majority of on-air freelances as self-employed.
- The BBC’s view, and that of representative bodies the NAO spoke to in the media industry, is that CEST’s multi-sectoral approach means that it is not suited to media and broadcasting roles. For on-air roles, the BBC has continued to use the additional guidance it received from HMRC along with CEST, while, for off-air roles, it continues to use the existing television, film and production guidance notes, and only uses CEST when these notes do not give a clear outcome for a certain role.
HMRC is consulting with the media industry about the employment status of freelancers with a view to updating its employment status manual and associated CEST guidance. This will replace the radio industry guidelines and the television, film and production guidance notes, and the BBC hopes it will set out clearly those on-air and off-air roles it deems to be employed and those self-employed, thereby reducing the need to use CEST. In July 2018, Deloitte submitted an industry-wide response to HMRC’s approach.
Ex-gratia and disputes
In June 2018, the BBC announced an ex-gratia payment of up to £500 to anyone earning less than £45,000 a year from the BBC as a contribution towards additional book-keeping fees arising from the IR35 compliance changes. By August 2018 it had paid out almost £12,000 on 33 claims.
In March 2018, the BBC announced its intention to set up an independent mediation process under the supervision of the Centre for Effective Dispute Resolution (CEDR). This aimed to determine the right approach in cases relating to before April 2017 where individuals who were hired through PSCs believed that the BBC bore some responsibility in relation to HMRC’s demands for employer’s national insurance contributions from their PSC, because, they claim, they had received misleading or limited information from the BBC. The BBC has yet to finalise the details of this process as it is exploring other options for resolution. In May 2018, the BBC approached HMRC to discuss the possibility of an alternative approach, which potentially offers advantages over the above mediation process, for example, in terms of the amount of BBC management time involved. Discussions are still ongoing.
Track case law, developments to the CEST tool and run through the employment status checklist.
Off-payroll rules for the public sector
A guide to the statutory provisions that move the responsibility to assess a contract under IR35, and deduct PAYE and NICs from the worker to their public sector engager.
Personal Service Company (PSC)
A guide for PSC owners and their tax ules
The IR35 tax rules may apply when a worker supplies his personal services to a private sector engager through an intermediary trading vehicle such as a company or partnership.