Are all Contractors Equal?

Last Thursday the National Audit Office released their report into the BBC’s engagement with personal service companies (PSC’s). Given that on the same day the Government published the final Brexit Agreement that prompted several Ministerial resignations, it may be that this report largely went unnoticed. It is however worth devoting some time to reading because it gives a fascinating insight into how the BBC is dealing with the emerging tax issues of their freelancers.

At the centre of the issue is that the BBC, a publicly funded body, encouraged, if not insisted that its independent contractors operate through a structure that minimised the income tax and national insurance costs for “Auntie”. There has been a lot of evidence provided that the BBC would not engage anybody unwilling to use a PSC and take responsibility for their own tax and NI regardless of whether they should have correctly been classed as employed by the public service broadcaster.  As a result, the BBC and HMRC have been encouraged by Government, their ministerial departments, and sections of the media to help such contractors who were told that they could only work for the BBC if they used a PSC.

Let’s draw comparisons to those contractors who were told they must use certain umbrella companies if they wished to obtain a contract with an end client. Those end clients included a significant number of Government Departments and publicly funded organisations amongst them, as well as institutions that were then publicly owned as a result of the financial crisis. Both were told the only way to obtain the contract was to use the structure suggested; both have been challenged by HMRC and accused of using a structure that avoids the full rates of tax; and both are now suffering significant tax liabilities going back many years. But this is where the comparisons stop because whilst many contractors are left to flounder not knowing which way to turn, those that contracted at the BBC being supported by the corporation.

The NAO report indicates that the BBC has paid bridging loans to parties affected, they have paid additional book-keeping fees that have arisen for individuals and paid £8.3million tax to cover the additional tax due by the PSC’s. Is that the behaviour of an organisation that always believed it was acting correctly, or one that acknowledges it has a share of the blame in this fiasco? I am sure that last time I checked it was still you and I that funds the Beeb, so should they have done no wrong then why are they using our money to pay taxes they have no obligation to? Perhaps more importantly, does this place both a legal and moral obligation on other public sector or publicly owned organisations to follow suit and provide help to the contracting community it relies heavily on to deliver its business?

Why is nobody is calling for those organisations to help these contractors undo something of their making. Not the Government, not the media, and not the agencies or the professional bodies. Instead they are being labelled tax avoiders, or worse as Philip Hammond did in Parliament recently (incorrectly), tax evaders. Perhaps Joe Bloggs, IT contractor for publicly owned mega bank does not have the same media appeal as Miss Local Celebrity despite the similarity in their tax arrangements, but should that matter?  Could it be that the Government are going softer on the celebrities because of the media exposure they can achieve and the wish not to see such reporting expose the complicity from organisations connected so closely to Whitehall, especially given the perilous political position they currently find themselves in?

It comes down to fairness, which is all that my clients are looking for. PSC’s and umbrella companies are two sides of the same coin. They are insisted on by end clients to protect themselves and not the contractor and unfortunately this has given rise to unintended tax consequences for both. All that is asked is that both are treated the same way and given equal support to unwind these structures in a way that does not bankrupt them. If it is good enough for the high paid, social media savvy celebrity, then it should be good enough for all contractors who find themselves in such an awful predicament.