Scope of the inquiry
The BBC hires thousands of freelancers every year: in 2017/18, it hired 60,000 freelancers, which included actors, presenters and camera operators. For freelance roles, individuals can be contracted through personal service companies (PSCs): a limited company that typically has a sole director who owns most shares and provides services to clients via a contract. In 2017/18, the BBC had contracts with 5,145 PSCs, on which it spent a total of £84m.
PSCs can pose a risk to the Exchequer:
- In the late 1990s the government became concerned that some people were using PSCs to avoid paying the correct amount of tax. This is because there are different tax regimes for personal and business income.
- Legislation called IR35, via the Finance Act 2000, aimed to address this risk, seeking to ensure that people who work in the same manner pay broadly similar amounts of income tax and national insurance.
- However, a central part of IR35 was that the PSC had to assess their own employment status for tax purposes. This carried the risk of associated tax liabilities/debt as a result of misclassification.
- In April 2017, the government reformed the system so that public bodies, such as the BBC, became responsible for determining the employment status for tax purposes of all those it hired through PSCs.
A National Audit Office (NAO) investigation has found that, in many cases, the BBC’s application of HMRC’s employment status assessment test generated a different status for tax purposes compared to the BBC’s own assessment test. In its assessment of 663 on-air freelancers, 92% were deemed to be “employed for tax purposes determination” using HMRC’s tool, whereas the BBC had assessed the majority as self-employed.
Between April and September 2017, the BBC paid £8.3m of tax to HMRC to avoid any penalty charges for not paying tax that was potentially due. Although it is starting to recoup this money once it is certain about an individual’s employment status, it is still to recoup £2.9m because of concerns raised by individuals.
The NAO report also found that the BBC’s implementation of these changes has created difficult relationships with some of its staff: 170 have publicly expressed concerns with the employment status given to them by the BBC.
Individuals have said that they only started operating through PSCs because the BBC required them to do so if they were to receive work and they feel they have received misleading or limited information from the BBC.
By May 2018, the BBC estimated that some 800 staff, 300 of whom were hired through PSCs, warranted further review because they were at risk of being challenged by HMRC. According to HMRC, as of October 2018 there were approximately 100 open investigations into BBC-related PSCs.
The Public Accounts Committee first addressed the BBC's use of PSCs in 2012 as part of a wider inquiry into off-payroll working across the public sector. In this new inquiry, the Committee will consider the BBC’s use of PSCs, why issues have arisen, how the BBC has managed its use of PSCs, as well as steps it is taking to help affected individuals.
The Committee will also question the BBC about its programme to replace and enlarge the EastEnders set and improve infrastructure at the BBC’s Elstree Centre, which, according to a recent NAO report, is now forecast to cost £27m more and taken an additional two and half years to complete.