Julia Kermode, chief executive of The Freelancer & Contractor Services Association on the BBC IR35 case and more.
The debate over how the BBC pays many of its stars and production workers who work for the corporation on a freelance basis hit the headlines again this month as part of HMRC’s ongoing crackdown on the employment status of BBC presenters. Tim Willcox, Joanna Gosling and David Eades argued that they worked for the BBC on a self-employed basis, but the court agreed with HMRC that the relationship between the BBC and the presenters was akin to employment, and the presenters now face a significant tax bill.
However, the facts of the case were not straight forward because two tribunal judges took opposing views, so the conclusion was decided on a casting vote of another judge. Surely this illustrates how unfair it is to expect businesses to make IR35 determinations in the light of off-payroll legislation that is due to come into effect in 2020. If the judiciary fails to reach an easy conclusion, how on earth can firms without access to expertise hope to reach a conclusion?
Furthermore, the outcome may well deter businesses from engaging people who work for themselves and may deprive firms of the vital skills they need. It is a move that UK plc can ill afford in these uncertain economic times when businesses naturally turn to flexible talent, engaging them on an as needs basis. And all because the Treasury is under the illusion that it is missing out on tax for the coffers. Personal service companies (PSCs) are not a mechanism to avoid tax, they are a perfectly legitimate way of someone being in business on their own account which some people prefer to being a sole-trader because it separates business and personal liabilities. It should be remembered that personal service companies are themselves subject to corporation tax and the individual working through their PSC is subject to dividend tax (which recently increased) when they draw their income from that company.
I continue to be concerned that HMRC’s actions provide a catalyst for misunderstanding the legitimacy of PSCs which bring much-needed flexibility to both the freelancer and businesses that engage them, just as the Lords Select Committee stated in its report in 2014. What’s more, we understand that the BBC advised their temporary workers to work through PSCs and now we are seeing the fallout. I have some sympathy for any BBC presenters who did not get good advice and the cases illustrate that sound expert advice on IR35 status is critical. In the eyes of the current IR35 legislation, the presenters were ultimately responsible for their own tax affairs, even if they were unfairly coerced into a certain working arrangement.
Individuals choosing to be self-employed are in a very different position of security to someone who is a permanent employee with all the accompanying statutory rights and benefits. And there is absolutely nothing wrong with choosing to work through a limited company in line with current tax legislation, so I would urge businesses not to be put off engaging PSCs if it is appropriate for their circumstances.
Employment status is complex and the BBC’s latest case is further proof that the government cannot reasonably expect businesses to be responsible for determining the IR35 status of the contingent workforce that they engage. However, it is pressing ahead with its plans, so it is important that recruiters have a plan in place and are well prepared for the new legislation ahead of April 2020. FCSA would advise recruiters to support their clients now so that they are able to undertake their new responsibilities next year. This might include:
– helping clients to identify their current contingent workforce and how they are engaged
– helping clients to decide who is responsible for making decisions on the employment status of their off-payroll workers.
– helping clients to develop and implement a robust process to ascertain how each engagement will be assessed.
– establishing good lines of consistent communication so that everyone throughout the supply chain understands IR35 and its implications.
– reviewing your own processes and supply chain to ensure it is fit for purpose. It is imperative that due diligence is carried out to ensure that you are working with fully compliant partners who will minimise risk to you and your clients.