POLITICIANS in the Public Accounts Committee have expressed grave concerns that the BBC employs 25,000 people who do not pay tax at source.
The cross-party committee, chaired by Labour MP Margaret Hodge, said it was "shocked" at the scale of the practice, under which individuals must make their own tax and national insurance payments.
The figure includes about 13,000 on-air television and radio ‘talent', with a further 12,000 off-air staff. About 3,000 are paid via private companies which could potentially allow them to reduce their tax liabilities.
Hodge said the arrangements raised "suspicions of complicity in tax avoidance".
The committee has been analysing tax avoidance following controversies relating to senior public sector office holders and their employment status.
Initially, it was reported Student Loans Company boss Ed Lester was being employed through a personal service company with no tax deducted, before it emerged that about 2,400 senior public staff earning more than £58,200 per year were engaged in a similar way.
Following those disclosures, Treasury secretary Danny Alexander pledged in May that civil servants earning more than £220 per day for more than six months would be required to demonstrate their taxes are in order and obliged to move onto the payroll or terminate their contracts.
But Hodge felt the Treasury's review was narrow as it did not pertain to departments such as the NHS, local government and the BBC.
She said: "The public sector must itself maintain the highest standards of propriety in its employment practices if it is to show leadership in the fight against tax avoidance.
"Those whose income is derived from monies raised through taxation have a particular obligation to make sure that they do not use tax avoidance schemes."
The broadcaster told the committee the 25,000 staff in question were freelance workers, with the arrangements a "standard model" in the media industry, but added it is conducting a review of the situation.
The committee, though, said in a report today that the BBC cannot currently provide "any assurance" that those workers are paying the appropriate tax.
"Although the BBC told us it provides information on its off-payroll arrangements to HM Revenue & Customs, it has no means of ensuring that its freelancers are paying the right amount of tax," it said.
"The [BBC's] review should set out how it will gain assurance that its staff pay the right level of income tax and national insurance on their income."
If they were all forced to go on PAYE then a large percentage (89%?) )would no longer need accountants.
If this was extended across the entertainment industry as a whole?
Posted by: Michael, 05 Oct 2012 | 09:43
How many more civil servant groups are we going find operating in a totally incompetent and not fit for purpose ?
This practice echoes that practiced in the construction industry years ago.
It was ruled then that if you worked mainly or only for a company you could not claim to be a labour only subcontractor.
So what is the difference ?
It would seam that the head of Inland Revenue is not aware of what is going on in their own department and should therefore be sacked.
What is it that they find so complicated to draft proper rules ?
I suspect just like the government the place is bulging with university staff but nobody with who can think logically.
Posted by: Sydney MARSH, 05 Oct 2012 | 09:56
There is little else to be said.
Posted by: Nigel Roberts, 05 Oct 2012 | 10:07
There are over 1.5m freelancers in this country and they contribute an enormous amount of Tax into the public purse.
Many like myself will operate through a Limited Company - not a "Personal Service Company" as there is no such legal entity.
We operate through Limited Companies and as such all our accounts and tax dealings are transparent to HMRC. My personal tax through self assessment is also 100% transparent.
The tax we pay is set by the government not ourselves and as such with our accounts being transparent then its up to HMRC to detect any wrong doing.
Most of us are ordinary people and unlike say David Cameron's family do not have expertise in hiding money off-shore.
We hire accountants to make sure we get things right and pay the right amount and don't mess things up.
I freelance because I get paid a premium for my services. i do it because i enjoy the flexibility it gives me and enjoy running my own business. If I've been lucky enough to find a client who wants to offer me enough work for exclusivity then that is great.
What other Limited Company would be asked to give up a customer after say 6 months and find another? so Why would a single person Limited Company be treated differently. there is one set of rules for all.
These MP's seem to be attacking a perfectly legitimate business model and one that is working for the benefit of the tax payer.
If MP's are worried about any dodge schemes - and I don't know any - then they should shut them down and change tax laws not attack those that are following the laws they set.
Posted by: Phil Spilsbury, 05 Oct 2012 | 10:44
Sounds like IR35 arrangements need to be completely overhauled. There are too many people out there making a fortune as "contractors" who in reality only have 1 place of employment. I have heard too many stories of people being encouraged to be contractors when they are nothing more than employees all to help the employer avoid NIC. It's a disgrace and its not just the BBC who have been at it.
Posted by: Alastair, 05 Oct 2012 | 10:51
The truth is that the overall tax take from using a PSC may not be that far removed from what you as an individual might pay under pay-as-you-earn (PAYE).
In fact, it could be that you pay more.
The biggest savings are in fact to the employer, because they do not need to suffer the burden of the employers' national insurance contributions (NIC).
Let me show what we mean with some numbers. The income in this case is taken as £200,000.
Someone being taxed at source as a conventional employee under the PAYE system would pay income tax at 20%, 40%, and 50%, amounting to £70,074.
There would be a clawback of their personal allowance on their earnings above £100,000, amounting to £3,242, and also national insurance payments of £7,337.
That equals £84,653, leaving them £115,347.
Now what about someone taking their £200,000 income through a PSC?
Firstly, the company would pay 20% corporation tax, or £40,000.
If the remaining £160,000 was taken as a dividend, the most tax-efficient way of using this arrangement, then the person would pay £58,019 as income tax on their dividends, at rates of 32.5% and then 42.5%.
When added to the corporation tax that would amount to £98,019.
In turn, that would leave them with income of £101,981 which is, in fact, less that the person on PAYE.
So the individuals being portrayed my Margaret Hodge and the media as Tax Dodgers are not guilty of the crime described.
It is the employers who are guilty of not paying Employers PAYE/NI buy hiring people in this manner.
The government run the public sector so it is the government who should be that target of such criticism not honest hard working freelancers trying to make the most of their skills.
Posted by: Sam Miller, 05 Oct 2012 | 17:57
Good luck to any business that utilises loopholes within the tax system. If government actually spent the time thinking about the laws before initiating them, then there wouldn't be any loopholes.
Having said that, there will always be people out there smarter than those in government so loopholes will always exist. As one closes, another opens.
Posted by: Carl Derving, 07 Oct 2012 | 21:19
I do not care if "employees" have tax efficient arrangements. No justification is required; they are simply taking the most efficient route available to them.
My question is to the government: why are the arrangements so much more tax efficient?
Each time I ask this of anybody I am met with a response explaining "how", which I already know. I am looking for a logical and/or moral justification for why income from a company is taxed less than from an employment, even after allowing for corporation tax.
Posted by: Dave, 08 Oct 2012 | 11:28
The defenders of service companies never mention how easy it is for them to take the cash from the company without paying any tax onit then let the company go bust start another company and do it all again.Hmrc seldom do anything about this presumably too difficult for them to police effectively or can they just not be bothered.Politicians willcriticise them for harassing so called entrepreneurs
Posted by: George , 09 Oct 2012 | 16:15
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