Freelancers Personal Service Companies Use
Freelancers Personal Service Companies Use has come under attack again at The Times newspaper.
They have targeted the BBC again.
The BBC hire many of their presenters on a freelance basis.
The Times obviously see this as tax avoidance.
Deloitte Gives BBC Clean Bill of Health
However, Deloitte, when they were brought in after the last Times attack on BBC freelancers concluded that ‘there was no evidence of a BBC policy to engage with tax avoidance’.
They discovered that 3,272 BBC presenters used personal service companies.
Deloitte said that there were ‘weaknesses’ and ‘inconsistencies’ in how the BBC employed some of its big names.
However, they gave the BBC a clean bill of health on BBC Freelancers Personal Service Companies Use.
BBC Presenters Paid Large Sums of Money
Despite this The Times are back again talking of the ‘scandal’ of presenters at the BBC being paid large amounts of money and paying less tax than permanent employees.
They cite Freelancers Personal Service Companies Use.
They talk about Chris Evans earning £2.25m a year and using a personal service company.
Also, they talk about Jeremy Vine earning £750,000 a year and using two personal service companies.
Then again, they talk about Claudia Winkleman of Strictly Come Dancing earning £500,000 a year and using a personal service company.
They reckon that the total loss to the Treasury over 4 years is £15m to £20m because of Freelancers Personal Service Companies Use.
Hang on a minute.
BBC Freelancers not Employees
The Treasury only lose that money if, in fact, the BBC freelancers are indeed ‘disguised employees’ and not true freelancers.
If they are proper freelancers they can legally use personal service companies and defer some business expenses this way.
And if they are, HMRC has not lost anything in four years as they had no entitlement to it in the first place.
Freelancers Personal Service Companies Use is allowable.
It is the Government who make the laws. Freelancers just follow them.
Freelancers v Employees
The Times didn’t examine at all whether those presenters are genuine freelancers or disguised employees.
As Jeremy Paxman was one of the presenters that The Times ‘fingered’ last time lets take him as an example.
Let’s also look at the last court judgment on how you determine a freelancer from a disguised employee.
Freelancers Personal Service Companies Use – Judge Blows Hole in IR35
See Judge Blows Huge Hole in IR35 and New IR35 Test for Contractors that we knocked up after the verdict.
The three main IR35 factors are:-
- Supervision, Direction and Control
- Right of Substitution
- Mutuality of Obligation
Supervision, Direction and Control
As regards the first one, I don’t think that anyone told Jeremy Paxman how to do his job.
They may have told him what they want done, e.g. which item of news to talk about it, but they wouldn’t tell him how to do it.
That’s just the same as my telling a plumber what I want fixed. I then leave him to do it in the way he knows how.
That would be the same with Paxman and other freelance presenters.
Right of Substitution
So, lets look at the Right of Substitution.
Was Jeremy Paxman the only one that could do this job?
Of course he wasn’t and, indeed, we would hear every so often, “Kirsty (or someone else) will be standing in for Jeremy Paxman tonight as he is…”.
Mutuality of Obligation
Then there is Mutuality of Obligation.
That is the obligation for Paxman to turn up for work every day and for the BBC to pay him for it.
I don’t know if he was on a fixed term contract or a rolling contract.
If he was on a fixed term contract then the judge, in the case above, said that as there was no obligation on the company to pay the freelancer, a Mr Wells, after his contract was up then there was no Mutuality of Obligation.
Freelancers Working for Other Companies
There was a further factor in his favour.
The Judge ruled that there was nothing in his contract to stop the freelancer from doing work for other clients at the same time.
This is specifically excluded in the working contracts of employees.
Presenters like Paxman are free to write columns for newspapers and magazines, as they often do, or to appear in TV ads either personally or as a voice over.
So, we can see that Paxman and other presenters, like Chris Evans, are true freelancers according to the laws of the land.
Legally Entitled to Sue Personal Service Companies
The are legally entitled to use personal service companies.
So, HMRC are not losing anything in tax – unless The Times is suggesting that the IR35 laws should be tightened so that BBC presenters would no longer be allowed to use personal service companies.
It’s easy to pick out well known names and say ‘look at how much they are earning and they are able to pay less tax than permanent employees’.
They even wheeled in John O’Connell of the Taxpayers Alliance to say “Licence fee payers are angry to discover some of the incredibly high salaries of pampered celebrities; they will be furious to see that many were paid using methods often lambasted by BBC documentaries”.
Of course it is easy to get people animated about people who earn more than them paying less tax than them as a percentage.
No Benefits for Freelancers
However, they are not comparing like with like.
The freelancer:-
1. Gets no sick pay, holidays, pensions or other employee benefits
2. Does not have the security of employment that a permanent employee has
3. Has expenses that a permanent employee doesn’t have like having to buy his, or her, own equipment, paying an Accountant etc.
4. Gets no promotions, share options, training, company car or other benefits a permanent employee might get.
I’m sure The Times reporter does genuinely consider this to be a scandal.
The big problem is perception.
Theresa May and Phillip Hammond
Theresa May and Chancellor Hammond have both said that it is an unfair anomaly that a self employed person earning £100,000 a year pays less tax than a permanent employee earning the same.
However, as we said above, they are not comparing like with like. Freelancers do have genuine expenses that a permanent employee does not have.
Why should these not be tax deductible?
Freelancers Not Lobbying Well
The big problem that freelancers have is that they are not selling this message very well.
They should be educating Government ministers, journalists etc. as regards the case for Freelancers.
The use of freelancers gives companies greater flexibility.
If the economy takes a downturn they can simply get rid of their freelancers at minimal cost rather than having to make huge redundancy payments when they can least afford it.
They can also benefit from the expertise of a freelancer, who usually have more experience than permanent employees doing similar work.
They can cross pollinate companies bringing in good ideas from other places that they have worked.
Freelancers Paying Less tax Than Permanent Employees
However, this message is not getting across if Prime Minister Theresa May is promising to do something about the ‘unfair anomaly’ of the £100,000 a year freelancer paying less tax than a £100,00 a year employee.
Contractors representatives are obviously not getting this across to journalists like The Times journalist today.
The Prime Minister and Chancellor almost certainly got this view of the ‘unfair anomaly’ from the big consultancy firms that they use extensively.
These consultancy companies see contractors as rivals for business.
They would much rather a company paid them £1,000 a day for a recent graduate than paid £500 a day for an experienced contractor.
HMRC Sources?
Where did The Times get the info for this article?
I don’t know – but I would guess at HMRC.
Contractors’ representatives like IPSE should get their fingers out and do a decent job of lobbying for freelancers.
They should get in touch with this journalist and make the case for freelancers.
Freelancers Personal Service Companies Use is nothing to be ashamed of.
IR35 and Disguised Employees
IPSE should remember that they were set up to get rid of IR35 – which was put in place after a Times article about disguised employees.
That was where companies laid off employees on the Friday only to start again as freelancers on the Monday.
The IR35 legislation not only caught those contractors but caught a whole load of other contractors who had been operating for years as genuine contractors.
Politicians always like to be seen to be ‘doing something’ when something like this happens.
If IPSE and others don’t nip this one in the bud they may see history repeating itself and the Government once more legislating against freelancers.
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