Experts are calling for more protection against organisations ‘pressuring’ people into self-employment models, after it was revealed thousands of BBC staff could face significant backdated tax bills for working through personal service companies (PSCs).
The broadcasting corporation came under fire in March, after MPs were told hundreds of employees had been ‘coerced’ into setting up PSCs that enabled them to be treated as freelancers, rather than full-time staff.
And last month, BBC director general Lord Tony Hall told the digital, culture, media and sport committee that more than 3,000 BBC radio staff were put through a test to establish whether their employment status was affected by changes to the IR35 rules. These have required public sector organisations engaging with staff working through PSCs to determine their employment status for tax purposes since April 2017, resulting in increased tax bills for many freelancers and contractors.
Anthony Sakrouge, partner at Russell-Cooke, told People Management the policy of requiring people to work under PSCs had allowed the corporation to save millions in national insurance contributions, but highlighted the need for individuals to seek independent advice when setting up a PSC to assess the risk of being caught by HM Revenue and Customs (HMRC).
“Those affected are hoping the BBC will agree to pay the employer’s national insurance contributions it would have been liable for had they been treated as employees,” he said.
“If the organisation is the one insisting on the arrangement being treated as one of self-employment, and there appears to be a significant risk that HMRC will eventually regard it as employment, it may be appropriate for the employee to seek an indemnity from the organisation at the outset in respect of any taxes, national insurance contributions, penalties and interest which might become payable if HMRC disagrees with the tax treatment.”
Following reports the IR35 rule changes will be extended to the private sector in the coming month, Keely Rushmore, partner in the employment department at SA Law, warned other companies which had followed the BBC’s suit could find they had staff in a similar situation.
“What is particularly worrying in this case is the alleged pressure placed by the BBC onto individuals to provide their services via a PSC arrangement, pressure that is no doubt echoed across industries adopting a ‘self-employment’ model,” she told People Management.
“Whether the government steps in to ensure such pressure is unlawful remains to be seen.”
This February, former BBC presenter Christa Ackroyd was ordered to pay over £400,000 in unpaid tax after the high court ruled she was an employee rather than a contractor.
Meanwhile, reports last week indicated ITV presenter Eamonn Holmes is facing an IR35 investigation that could cost him up to £2 million.
Julia Kermode, chief executive of The Freelancer & Contractor Services Association (FCSA), disputed the argument that PSCs were a mechanism to avoid tax, but said the case highlighted the complexity of IR35 legislation.
“It is essential that HMRC does not penalise everyone working through PSCs in a blanket fashion as they bring much-needed flexibility to both the freelancer and businesses that engage them on a short-term basis,” she said.
“Employment status is complex and Mr Holmes’ situation is further proof that the government needs to address this outdated legislation as a matter of urgency.”
HMRC has not yet responded to People Management’s request for comment.