BBC Annual Report and Accounts 2017-18: Equal pay at the BBC Contents

3Personal Service Companies

The BBC’s use of Personal Service Companies

61.Personal Service Companies (PSCs) are used as a vehicle to promote the work of an individual or small group of individuals. They are owned and operated by that individual or small group of individuals as a limited company. Legislation (known as IR35) has existed since 2000 to make sure that individuals providing their services through PSCs pay broadly similar PAYE and national insurance contributions (NICs) as they would pay if they were employed directly by their clients.

62.Prior to the introduction of the IR35 rules it was possible to circumvent tax requirements by setting up a PSC. By paying corporation tax at 20% and taking a wage, plus dividends from the company, individuals could take an annual income of up to £42,385 without paying any income tax or NICs. Other tax savings were also possible because: companies had greater scope for deducting expenses than employees; dividends could be shared with a spouse; and higher rates of income tax could be avoided by retaining profits within the company.

63.The BBC told us that it followed a policy from between 2007 and 2012 to engage presenters via PSCs “where contracts were likely to exceed 6 months in duration or be worth over £10k in value”.103 In 2012, the BBC had 6,123 contracts with PSCs, this included 124 ‘on-air talents’ earning more than £150,000 who were paid through PSCs.104

64.The BBC insisted that it used PSCs to “retain the creative benefits of a flexible workforce without exposing the licence fee payer to additional risk in areas where a lack of specific HMRC guidance made employment status complex to establish”.105 However, Jolyon Maugham, the tax QC, told us in evidence that there was “a whole raft of advantages” of employing staff using PSCs.106 For example, using contractors in this way discharged the BBC from any PAYE obligations, enabling it to make large savings in Employers’ NICs.

65.The BBC would have been able to make further savings, as where an employee is engaged through an intermediary the BBC no longer has an obligation to offer any type of employment rights or workers’ rights to reflect a worker’s desire for flexible working.107 Therefore, individuals employed through a PSC have no entitlement to sick pay, holiday pay, maternity leave, pension rights or other benefits, because their contract is with the PSC not the BBC itself.

66.Until April 2017, responsibility for complying with tax requirements was the responsibility of the PSC itself, not the BBC. By insisting on the interposition of a Personal Service Company, the BBC could ensure that, if HMRC was to find that an individual was an employee of the BBC, the tax liability would fall on the PSC, rather than the BBC. Jolyon Maugham told us that:

If you look at it purely legally [ … ] if you are not concerned with the moral quality or the reputational consequence of your actions, then you always insist upon the interposition of a Personal Service Company. If you bring into that equation what corporate social responsibility looks like, what reputational concerns look like, then the equation gets a little more complex.108

67.While Deloitte’s 2012 review of the BBC’s Freelance Engagement Model found no evidence to suggest the BBC had engaged with PSCs with an aim of avoiding tax or NICs, it did acknowledge that engaging with PSCs could “generate suspicions of complicity with tax avoidance”.109 Jolyon Maugham told us that the BBC’s use of PSCs meant that “the Exchequer has undoubtedly lost out”, probably costing HMRC “tens of millions [of pounds]”.110

Impact on individuals

68.Witnesses emphasised that PSCs “[left] people adrift when it comes to sick leave and holidays and maternity pay [ … .] [but] also put people in a very insecure position of work”.111 The BBC presenter Kirsty Lang explained the effect that this had had on her, telling us that:

Not long after I went freelance my stepdaughter died suddenly. I was unable to take bereavement leave. In fact, I went back and did my first show even before her funeral, because I had to get some money in. Then two years after that I was diagnosed with cancer. I had surgery, radiotherapy, chemotherapy, hormone therapy. I worked the whole way through.112

69.We received a further dossier of evidence from BBC presenters cataloguing the damaging impacts that these contracts had on individuals. We heard accounts of staff suffering from severe stress, mental health deterioration and financial hardships as a direct result of being pressured to set up PSCs.113 One individual told us that “my mental health deterioration is absolutely linked to the increased stress of working for the BBC”,114 while another presenter noted that:

The way the BBC has employed me has meant I have lost out on a life-changing sum of money, but it is the emotional cost which is more concerning. I have suffered life-altering levels of stress and worry which affect me daily and have had a deeply detrimental effect on my family, my children, my health and my wellbeing.115

Conduct of the BBC

70.The 2012 Deloitte review found that the BBC operated a “fairly strict policy” of engaging certain categories of on-air talent through PSCs from 2007–2012.116 However, we heard from many presenters who felt that this policy had been enforced too strictly.117 Many witnesses told us that they had felt compelled to set up a PSC.118 For example, Paul Lewis told us that “people certainly felt that they had no choice but to agree to form a PSC” as if you did not do it you did not work”.119 BBC presenters Liz Kershaw and Stuart Linnell both told us that they worked for months without pay after refusing to set up a PSC.120 Several presenters were also incorrectly told by the BBC that contracting via a PSC was a requirement of HMRC.121

71.The Deloitte review found “no evidence of any pressure to move staff to PSC arrangements”.122 However, some of the evidence that we received contradicted this finding. We received multiple testimonies from individuals claiming that they had been forced off staff contracts and made to set up PSCs. For example, one presenter told us that “I was forced off a BBC staff contract in order to be allowed to pursue a presenting career”.123 These staff would have then lost all the rights that came with their staff contracts including pension contributions, sick pay, holiday pay and maternity pay.

72.Deloitte also noted that many of those with PSCs wanted to remain as freelance staff and “did not want to work on staff contracts”.124 However, we were told that many of those staff affected would like “to become staff employees, with the benefits that then follow”.125 We heard that many presenters were not offered the choice to have a staff contract.126 This is despite an acknowledgement from Deloitte that some individuals engaged through PSC’s “appear to have the characteristics of “staff” and might be expected to be engaged as employees”.127

73.HMRC is now in the process of investigating many current and former BBC presenters over claims that they paid incorrect taxes while contracted via a PSC. Some presenters are facing liabilities of hundreds of thousands of pounds in unpaid income tax and NICs. Since we launched our inquiry into this issue, the BBC has committed to set up “a fair and independent process” under the supervision of the Centre for Effective Dispute Resolution (CEDR). We were told that this “process will assess whether it is appropriate or reasonable, given the responsibility to the licence fee payer, for the BBC to make any contribution towards historic demands for Employers’ National Insurance Contributions”.128 However, the BBC noted that there will be a very high hurdle for individuals to meet as public money is concerned.129

74.The National Audit Office is currently investigating the BBC’s relationship with PSCs. The investigation is examining: why issues with the BBC’s engagement with PSCs have arisen now; what the scale of these issues is; how the BBC has managed engagements with PSCs in the past; and how the BBC and HMRC have interacted with one another on this subject.130 The investigation is due to conclude later in the autumn.

Tax reform changes

75.In April 2017, responsibility for complying with tax requirements shifted from the PSC itself to the BBC. As a result of the changes, the BBC decided to stop contracting with freelance staff via PSCs. Many people that were previously employed via a PSC were given new contracts under which they were deemed to be “employed for tax purposes”. This meant that, although that PAYE and National Insurance contributions were deducted at source, individuals still receive no entitlement to pension contributions, holiday leave or sick pay.

76.We were told that the transition to these contracts was “done in such a cack-handed way that many people have been faced with financial difficulties such as double taxation, no pay, and threats of no work”.131 Individuals raised concerns that they have no idea what their take home pay will be at the end of each month, as it is impossible for them to tell how much NIC and PAYE will be deducted from each month’s pay check.132 One presenter told us that:

I’m expecting my first baby this month. As a single income household, it’s been incredibly important that I budget carefully to be able to afford 6 months’ maternity leave. However, the BBC’s incompetent and haphazard handling of my pay under IR35 over the past year has made it impossible for me to assess my financial situation, and plan and budget for my leave.133

77.The imposition of personal service companies falls short of the standards that we expect from any responsible employer and especially from the BBC. The corporation should be held to high standards due to its prominence in public life and its public funding. Yet the BBC’s 2007–2012 policy of engaging presenters via PSCs has caused “life-altering” financial and emotional consequences for many presenters. The imposition was for purposes that suited the BBC, but not necessarily the interests of its employees. As a direct result of the corporation’s actions, many presenters are facing liabilities of hundreds of thousands of pounds in unpaid income tax and national insurance contributions. We have seen strong evidence that the BBC made presenters feel that a PSC was a mandatory condition of work. This is a disgrace.

78.The BBC’s decision to launch a process under the supervision of the Centre for Effective Dispute Resolution (CEDR) marks a welcome step forward. However, it is regrettable that it took presenters coming forward to this Committee to force the BBC into action. Once again, the BBC seems content to ignore a problem until it is brought into the public eye.

79.Many individuals who were previously employed via a PSC are now classed by the BBC as “employed for tax purposes”. The way that these contracts have been administered has left individuals with no certainty or consistency as to what their take home pay will be at the end of each month. This state of affairs cannot continue and the BBC must work with the presenters affected to find a satisfactory solution. Freelance presenters should be engaged as an employee if they are providing services to the BBC unless they are doing so genuinely as someone in business on their own account providing services to numbers of clients including the BBC. As an employee they must then be afforded the rights and protections, including tax rules, that follow. In cases where it is clear that people were coerced into setting up a PSC in order to carry on working for the BBC, and face substantial claims for outstanding tax as a result, then the BBC should offer those individuals compensation for their losses.

103 BBC further supplementary note on the BBC’s position in relation to PSCs (PAY0012)

104 Deloitte, Review of BBC Freelancer Engagement Model, October 2012, p 19

105 BBC further supplementary note on the BBC’s position in relation to PSCs (PAY0012)

106 Q 318

107 Ibid

108 Q 320

109 Deloitte, Review of BBC Freelancer Engagement Model, October 2012, p 8

110 Q 323

111 Q77 [Michelle Stanistreet]

112 Q 262

113 BBC Presenters (PAY0011)

114 Ibid

115 Ibid

116 Deloitte, Review of BBC Freelancer Engagement Model, October 2012, p 7

117 Q 255, Q 260, BBC Presenters (PAY0011)

118 Q 255, Q 260, BBC Presenters (PAY0011)

119 Q 255

120 Q 260

121 Q 273, BBC Employees (PAY0010), Liz Kershaw (PAY0009)

122 Deloitte, Review of BBC Freelancer Engagement Model, October 2012, p 41

123 BBC Presenters (PAY0011)

124 Deloitte Review

125 Q 279 [Stuart Linnell]

126 BBC Presenters (PAY0011), 262, BBC Presenters Group

127 Deloitte, Review of BBC Freelancer Engagement Model, October 2012, p 9

128 BBC and Personal Service Companies, BBC Press Release, March 2018

129 Ibid

131 Q 252

132 BBC Presenters (PAY0011)

133 Ibid

Published: 25 October 2018