You may have seen reports recently about how the BBC pays some presenters and other specialist staff, suggesting that there is something underhand about our procedures. Nothing could be further from the truth and I want to explain clearly and simply why this is the case.

At the BBC, there are a number of overriding principles that we follow in this area. Firstly, everything we do is in line with HMRC guidelines, and we work closely with them to ensure that contracts do not result in any loss to the Exchequer. Secondly, we work extremely hard to make sure that we do not incur unnecessary costs that are ultimately borne by you, the licence fee payer.

And behind all this, we need to make sure that we support Britain's creative industries by giving specialist staff the ability to move around where necessary. Suggestions, therefore, that we are somehow facilitating tax avoidance are not only wrong, they are offensive both to the BBC and to the hard-working people who make and present our programmes. And they risk damaging a broadcast industry that ensures an uninterrupted flow of investment into UK content and adds significant value to the UK economy overall.

Let me quote you a senior figure on this issue: "There are circumstances in which it may be appropriate for an employer to engage an individual off payroll - and the fact that an individual is engaged off payroll doesn't mean that they are paying an incorrect amount of tax." Who is this? Danny Alexander, the Chief Secretary to the Treasury in the review that prompted this debate - the government's Review of the Tax Arrangement of Public Sector Appointees.

Now let me explain the details: Across the organisation, in common with every other UK broadcaster, the BBC makes use of freelance and service company contracts. At any one time, between 1,500 and 2,500 people employed as freelancers and fewer than 500 who are employed through service companies. These are people who provide skills 'behind the camera' such as directing, editing and other craft skills for a finite period. This is standard practice for people working across the industry.

Another group of people who regularly use service company contracts is presenters, as they typically work for a number of different organisations in any given year and they offer their services to the BBC and any other employer on self-employed terms. There are around 500 individuals with long term contracts paid in this way at the present time. It would be both unjustified and totally impractical to put all of these people on the payroll. By using the service company framework, which is set down by the HMRC, the BBC and other broadcasters can quickly and effectively contract people without having to undertake a lengthy detailed review of all their other work.

The service companies are not set up to help avoid tax. Once a service company is created, the individual has to pay the correct tax and National Insurance. We cooperate fully with the HMRC and provide them with annual reports of all payments made to individuals who operate service companies and provide all details required on any review they undertake. In addition to this we stipulate in our contracts that we expect individuals to settle their tax liabilities according to the HMRC guidelines in full.

Whether a freelance decides to set up a service company depends on their individual circumstances. But it is the preferred option for the BBC that talent are paid via a service company once a certain amount of work is being offered and HMRC are fully aware and satisfied with this arrangement. It is worth adding that we always recommend individuals seek independent advice on these matters as well.

It has also been suggested that we have forced people to set up service contracts rather than being a full-time employee. Again, this is not the case. We are not aware of any instance where someone who is eligible to be a staff member has requested this status and has been denied it. The BBC supplies the UK creative sector with a rich pool of highly skilled talent to draw from. This benefits large and small firms across the sector and helps the UK attract inward investment from those seeking access to some of the best creative expertise in the world.

We do this not only by producing some of the best content in the world but also by investing significant investment in training on skills used in our industry. The result is that we have a strong track record of nurturing talent across its TV and radio services, creating opportunities for new presenters, performers, musicians and writers that are not available elsewhere.

But we also do this by allowing creative talent the flexibility to move round the industry and to seek sources of income beyond the BBC. This does not only benefit the individual, it benefits the industry and the licence fee payer. And it does not mean - as no less than Danny Alexander has said - that they are paying the wrong amount of tax.

Zarin Patel is the BBC's Chief Financial Officer.

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  • Comment number 6. Posted by CS1980

    on 25 Jul 2012 13:47

    Sorry Zarin but you are either unaware of what really happens at the BBC or you are choosing to ignore it. I know 2 people who have had to form their own company - why? because they got offered freelance work at the BBC and the BBC insisted on it in order to give them the work!

    This will of course conveniently save the BBC 13.8% employer's NI... Following this I am not sure your comment 'we work closely with them to ensure that contracts do not result in any loss to the Exchequer' really has any meaning!

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  • Comment number 5. Posted by Radioactiveoldduffer

    on 24 Jul 2012 09:00

    So if I'm a well known news presenter who reads the news week in week out and am classed as freelance can I then appear on opposition news channels as well at the same time? If not then I must be bound by exclusively clauses and that puts me closer to being an employee than off the books. Most of these high earners gained fame and fortune at the licence payers expense so is it right that they now legally avoid the taxes that you and I now pay? Ad hoc contracts are one thing but appearing nightly is not ad hoc.

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  • Comment number 4. Posted by Steven

    on 24 Jul 2012 08:12

    The BBC may not be avoiding tax, but many individuals who set up service companies are. Legal, it may be, but as others have noted, ministers and other officials are starting to see that it's morally questionable.

    I work in the digital / programming industry and know many individuals who have set themselves up as LTD service companies; they all pay themselves a low salary (just above minimum wage, to avoid paying high taxes), and then pay themselves dividends. All legal, and not really something the BBC can do much about, but let's not pretend that it doesn't happen.

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  • Comment number 3. Posted by citizenloz

    on 24 Jul 2012 07:29

    It may be legal, but isn't this "morally wrong", as ministers are now suggesting?

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  • Comment number 2. Posted by droidster

    on 13 Jul 2012 18:01

    "The service companies are not set up to help avoid tax." - this is disingenuous. (At best.)

    I work in TV. I am a sole trader and have been for >5 years. I'm happy being a sole trader... it's actually very generous compared to being PAYE as I get to deduct business expenses against my income and pay tax on my profit.

    My accountant is always encouraging me to move into a ltd company (like many many colleagues) to pay Corporation Tax @ 20% rather than NI + INCOME TAX @ 35-55%. This is solely a tax avoidance measure (+ higher accountants bills).

    Unfortunately with some TVcos these days it is much *easier* if you bill as a ltd.co. So that adds to the pressure to move that way. Especially if you are at a grade that is not Schedule D.

    "From April 2013, if you have a limited company you can take £38,900 (£3,241 per month) out of company without paying any personal tax." (c) my accountant very recently.

    Solution:

    Who knows. Not the BBC's fault. I think merging employee NI and Income Tax would be a start (bad for me as a sole trader). Or enforce holiday pay rules (would encourage sole traders... I charge and get same rate as my colleagues who are ltd.cos... I get 'holiday pay' deducted and then added back on. They just get full rate.

    Whats the ratio of camera persons, EVS operators, etc that the TV companies employ Full Time on PAYE versus the number they use casually?

    1:100 for BBC/SKY 1:500 for C4/C5/IMG/ITV/ESPN/BT - is my guess

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  • Comment number 1. Posted by Kit Green

    on 11 Jul 2012 14:37

    You may not have forced people to use service companies.

    You have however (and you are no different to your competitors) effectively forced certain creative grades to be freelance.

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