24 July 2012 Last updated at 08:43 ET

Tax arrangements reports 'misleading' says BBC

Bruce is thought to be among those with a PSC, according to The Times

Claims the BBC has sought to reduce its tax contributions by requiring some employees to set up Personal Service Companies are "misleading", according to its chief financial officer.

In an email sent to staff, Zarin Patel refuted suggestions thousands of workers had been told "to go 'off the books' in order to cut our tax bill".

She also denied the BBC was "avoiding national insurance contributions".

The corporation, Ms Patel continued, did not have "anything to hide".

She added the BBC's tax arrangements would be reviewed "shortly... because we want to be able to reassure licence fee payers that all of our arrangements are functioning correctly and appropriately".

Ms Patel's email followed her appearance last week before the Commons Public Accounts Committee (PAC).

Concerns were raised by committee members that some BBC employees had been compelled to set up PSCs, which are legal, as a condition of their employment.

PSCs: PROS & CONS

How does an individual benefit by being paid through a PSC?

If you get money coming to your company, that company will pay corporation tax on its profits. When money comes out of the company, there won't be tax and NI if you take it out as a dividend.

There is also scope within a company to dictate when you take the money. This is something that has always attracted people who have very high earnings for a short period of time - sportsmen and entertainers, for example.

There are tax advantages depending on how you manage your affairs. But as much as anything it's just a clearer statement of your position.

How does an employer benefit by paying an individual through a PSC?

If the hirer treats an employee as self-employed and if the Revenue come along at a later date and say they are actually an employee, it's then up to the hirer to pay the PAYE and NI that would be due. In effect it's a penalty on the employer.

If there's any doubt on whether someone is self-employed or not, it's become very prevalent that the hirer insists on the person being hired through their own company to provide a safeguard.

Yes, it does cut the employer's NI and pension bill. If the employee is not on the payroll, they're not entitled to pensions and other staff benefits.

And yes, people can be sacked easier - they're not employees and their rights are very limited. Tax savings is undoubtedly one of the drivers but there are bigger factors.

Is it standard practice for a large company which employs freelancers to pay them in this way?

Yes, it is a very regular practice - it's safer and cleaner. If you're hiring a freelancer who is going to work with you for a spell, many hirers will argue that they should come through a company as it gives them the insulation and safety that we're not going to be held liable for PAYE and NI at a later date.

John Whiting, Chartered Institute of Taxation

The committee's chair Margaret Hodge said she had heard from one long-term presenter who had been employed by the BBC for more than 20 years, who said he had to go "off books into a service company" or face a "substantial pay cut".

A report in Tuesday's Times claims that newsreaders Fiona Bruce and Emily Matlis are also thought to be employed through PSCs.

It suggests that "several presenters are furious that they have been subjected to questions about their integrity as a result of a BBC decision that they claim they strongly resisted".

'Only option'

"The facts are simply that freelance contractors who earn more than £10,000 a year are told that we prefer them to set up a service company," continued Ms Patel, whose email can be read in full on her blog.

"In many cases, this will be their only option.

"This is for a number of reasons, including the need to ensure that the appropriate amount of tax is payable by an individual.

"The BBC does not expect anyone to use the service company arrangement to 'dodge tax' by paying the lower corporation rate when they are not eligible to do so."

"Far from being an attempt to 'dodge tax', the arrangements are designed to ensure the correct amount is payable," Ms Patel goes on.

This was to ensure, she said, "that we can offer the flexibility needed in the broadcasting industry, where individuals may work with several different organisations during the year".

'Offensive'

In a statement issued on Monday, the BBC said it "fulfils all its tax obligations to HMRC (HM Revenue & Customs) and expects all its contributors to do likewise.

"It would be offensive to suggest that talent are not paying the appropriate amount of tax when there is no evidence to back up such a claim."

Zarin Patel said the BBC did not have "anything to hide"

The BBC said there are around 3,000 off-air service companies contracted and that, "at last count", there were 467 long-term presenter service companies.

Last week Ms Patel told the PAC that 148 BBC presenters were paid through PSCs.

Wages paid through PSCs do not have income tax and national insurance contributions deducted at source, allowing tax dues to be reduced.

This fact was picked upon last week by the committee chair, Labour MP Margaret Hodge, who suggested it was not appropriate for a publicly funded organisation like the BBC to use such mechanisms.

"You are not paying your bit of tax due from your organisation back to the Exchequer," she told Ms Patel.

"Is it right that an organisation like the BBC should use these mechanisms that may be lawful but are not morally right?"