In July this year we announced that we would commission a review into the way we pay freelancers. There had been a number of articles in the press that suggested that the BBC was in some way helping facilitate tax avoidance amongst freelancers who used personal service companies (PSCs). The House of Common’s Public Accounts Committee had also looked into the issue and quite rightly asked us to expand on our arrangements.
We felt that a full and independent review would help us ensure we followed best practice and make recommendations for how we might improve our contracting in the future. We commissioned Deloitte to carry out this piece of work and gave them all the information they requested in order to carry out the review. Today in conjunction with the BBC Trust we’re publishing the review in full and submitting a copy to the Public Accounts Committee.
So what did the review find?
Firstly, there is no evidence that the BBC has attempted to avoid income tax or National Insurance Contributions (NIC). The review found that we have a high level of tax compliance and there was also no evidence we were moving individuals from our staff onto a PSC arrangement.
However there are changes that we intend to make, to give a clearer, more consistent approach to the way we contract with freelancers.
All permanent staff including senior management are paid on a PAYE basis with tax and NIC deducted at source. We also employ a large number of on-air and off-air freelancers each year in order to help deliver our programmes and services.
To put this in context, last year the BBC had contracts with 64,447 individual freelancers in both on-air and off-air roles. The vast majority of these contracts were for small amounts for contributions to programmes and were not in any way full time roles. On-air they might include actors, singers, musicians, dancers and voice-over roles. Off-air they might typically be camera operators, lighting and sound engineers, studio managers or temporary office workers employed via an agency.
For 90% of these freelancers there are clear HMRC guidelines as to their employment status. However for some individuals, including certain radio and TV presenters there has historically been no HMRC guidance, and so the BBC’s policy has been to engage them via PSCs. Last year this applied to 6,123 individuals, again many of them receiving small payments. The reason for this was because if HMRC disagree with their engagement status then the penalty for any liability would fall on the individual rather than the BBC and licence fee payers. There is also HMRC legislation in place (known as IR35) to ensure that these individuals pay broadly similar tax and NICs if their work was the same as that of an employee.
Although Deloitte agreed that engaging freelancers through PSC was legal and appropriate, they found that in some cases our policy for employing on-air talent had been applied inconsistently, with some people being engaged as employees, some as self-employed freelancers and some through PSCs. In some cases, some of the on-air talent appear to have the characteristics of 'staff' and might be expected to be engaged as employees.
So what we’re going to do is this:
- We will develop and apply a new employment test to all on-air and off-air talent paid via service companies and as a priority we will review 804 existing on-air talent paid either through PSC or as self-employed contractors who receive over £50,000 a year. This is likely to result in a number being offered staff employment when their current contract expires from the new financial year. However each freelancer has different circumstances and we will be speaking to all those affected individually to ascertain what is the most appropriate status for them. We intend to make any changes at no net increase in costs to the BBC.
- We will also work with HMRC to develop new objective criteria for the tax treatment of on-air presenters where none currently exist, this will serve as a model or 'modus' for the BBC and potentially the rest of the broadcasting industry.
- We will strengthen our reporting to HMRC on the occasions when we will continue to pay via a PSC, going further than the Government’s Alexander Review recommendations on the level of detail we will provide. The clauses we have in our contracts with freelancers on tax/NIC compliance will also be strengthened.
This work has been a very valuable exercise. The changes will help us improve our processes and by working with HMRC ensure there is more clarity about how we engage with freelancers. Last year the BBC produced 425,320 hours of programming, we couldn’t do this without working with freelancers but we think it's important that not only do we continue to fulfil all our legal obligations to HMRC and licence fee payers, but we also follow the most consistent and high standards in all our future contract negotiations.
Zarin Patel is Chief Financial Officer