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IR35 and personal service companies: HMRC’s Screen grab

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Personal service companies and IR35

For an organisation whose news output is relied on by so many millions of people around the world, the very way the BBC is run has itself been in the headlines and under scrutiny with some frequency over the last decade or so.

Much of the most recent debate and discussion has been about topics even more sensitive than the validity of the licence fee upon which the Corporation depends.

In recent weeks alone, the BBC has become embroiled in a dispute about the equality or otherwise with which male and female staff are paid.

IR35 new tax ruling

However, a new tax ruling could have even greater ramifications for its on- and off-air contributors than the controversy about gender and salaries.

A First Tier Tribunal has rejected an appeal from a former BBC television presenter who was accused by HMRC of owing Income Tax and National Insurance Contributions (NICs) totalling more than £400,000 racked up over the course of six years.

Christa Ackroyd had presented the North East regional evening news programme, ‘Look North’, for 12 years prior to being sacked in 2013. Whilst the BBC indicated that there had been an unspecified breach of contract” other news media at the time reported “concerns about Ms Ackroyd’s tax arrangements”.

Documents submitted to the Tribunal detailed that it was HMRC’s tax demand which prompted the BBC to terminate its working arrangement with the presenter.

The issue hinged on her use of a corporate vehicle known as a ‘Personal Service Company’ (PSC) to provide services to and receive payment from the BBC. Ms Ackroyd argued that she was a merely a freelance contractor but the Tribunal decided that she was effectively an employee, noting – crucially – that the control in the relationship rested with the BBC

Someone as senior as she was within the Beeb’s regional presenting ranks might well have had input on the broadcast output of the programme on which she worked. However, the various links in the editorial chain mean that merely having a say doesn’t indicate ultimate control of what is transmitted or not.

This is, of course, not the first time that the use of ‘Personal Service Companies’ by BBC presenting and production staff has attracted attention. Two years ago and under pressure from MPs, the Corporation disclosed that it had brought 85 presenters who’d previously used PSCs onto its books as permanent members of staff

That news came as freelances working in media and other industry sectors were still digesting proposals contained in the 2016 Budget which would see individuals working for public sector bodies taxed at source.

It was a development which followed sustained pressure from the House of Commons’ Public Accounts Committee, which described use of PSCs at the BBC and elsewhere in the public sector as “staggeringly inappropriate” because, in its opinion, they allowed people to pay less tax than it maintained they should.

What is novel about the Christa Ackroyd case is not necessarily her professional background or the wider HMRC and parliamentary campaign against PSCs.

This is the first IR35 (the shorthand for the PSC anti-avoidance rules introduced at the beginning of the last decade) ruling in nine years and will doubtless both reinvigorate the Revenue’s clampdown and cause great concern among those people who established PSCs, even – as Ms Ackroyd alleged – if they were at the insistence of companies such as the BBC.

Coverage of her Tribunal ruling has already suggested that other cases could well follow.

That is because unlike cases involving structures notifiable under the Disclosure of Tax Avoidance Schemes rules (DoTAS), the taxman is unable to issue Accelerated Payment Notices (APNs) to the participants. Despite broadly similar working circumstances, the cases of men and women with PSCs will, therefore, depend on their individual facts.

Personal service companies and IR35 – next steps

In the light of the Christa Ackroyd judgement, I would suggest that anyone who also has a PSC reviews their working arrangements swiftly in order to ensure that they genuinely are treated as independent contractors and not simply as staff members by another name.

As Ms Ackroyd has discovered, the consequence otherwise can be enormous.

If you are a contractor and have any queries regarding the use of personal service companies and IR35 then please do not hesitate to get in touch.

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