Larson Howie - BBC still to properly address IR35 failings

A very helpful article from Hannah Robinson at Larsen Howie regarding IR35 and the BBC

The BBC has come under fire multiple times since IR35 was applied to the public sector for its careless treatment of contractors. 

The national broadcaster has previously admitted that some contractors may have felt somewhat coerced into the use of PSCs and has apologised to those caught up in IR35 as a result.

However, apologising is not enough. The BBC now faces the tough task of rebuilding trust with its considerable pool of freelancers to retain current media stars and attract new talent.

PAC report says BBC apology isn’t enough.

A report was released earlier this month by the Public Accounts Committee (PAC) commenting on how the BBC’s use of PSCs has damaged its reputation. As well as reiterating the sentiments shared in the aforementioned meeting with BBC chiefs on the matter, the report deep-dives into how the BBC’s rash decisions concerning its workforce’s employment status has affected its contractors.

After calling the broadcaster’s approach to IR35 determinations ‘muddled and chaotic’, the report calls for the BBC to speed up its settlement agreement with HMRC to put those caught up in an investigation out of their misery.

The Chair of the PAC comments:

‘The BBC has serious work to do if it is to rebuild trust following what was a damagingly incoherent approach to hiring freelancers. The BBC’s failure to properly manage its use of personal service companies has had a devastating effect on individuals and revealed significant weaknesses in the Corporation’s processes.’

‘The lack of clear accountability at senior level for the BBC’s policy on PSCs, and the BBC’s poor communication with freelancers about the implications of that policy are particularly troubling. Apologising is not enough. The BBC has committed to helping those affected: we expect to see evidence both that it has done so and that it is taking meaningful action to prevent such distressing problems arising in future.’

As a result of the report, the PAC has given the BBC a deadline of June 2019 to clearly explain in writing how it plans to improve communication, simplify contracts and monitor employment status assessments of its freelance workers.

BBC failed to discuss PSCs with senior management.

The PAC was appalled to find that the BBC was unable to confirm whether its early PSC policy was signed off at an ‘appropriately senior level’ during its enquiry.

A previous investigation into public sector IR35 arrangements back in 2012 found that the use of PSCs within government organisations was rife, and the PAC consequently clamped down on what was deemed ‘sufficient levels of challenge’. It’s disappointing that despite this earlier enquiry, the same problems persist within national organisations.

The report states that the BBC was able to find minutes of executive meetings where the use of PSCs were mentioned, but there was no hard evidence that the PSCs were discussed openly and in full. However, the BBC has reassured the PAC that since the abolition of the BBC Trust in April 2017, the Executive Board and Unitary Board have ‘extensively dealt’ with PSC policies.

It’s yet to be detailed, however, exactly how the broadcaster has dealt with these policies and how it plans to resolve the dire communication issues amongst its upper management.

BBC also failed to fully explain PSCs to contractors.

Perhaps worse than not having official sign-off on the PSCs used, the BBC was found to have not properly explained to its self-employed workers the risks involved in using PSCs.

The report reads:

‘Before 2013, the BBC only hired freelance presenters in longer-term or higher paid roles through a PSC in order to transfer the tax risk, and potential associated costs, from itself to the PSC. This policy required individuals to set up a PSC if they did not already have one.’

‘The BBC told affected individuals to seek independent financial advice, but it failed to spell out to them their PSC's tax responsibilities or the risks they were facing from HMRC if they got their tax payments wrong.’

Conversations had with the freelancers about the use of PSCs were unstandardized, and those in charge of communicating any risks to the freelancers weren’t held to any compliance regulations. While the BBC did try to correct this when IR35 was rolled out to the public sector in April 2017 with seminars and presentations, it’s admitted since that some discussions were still not good enough. This was most likely due to the sheer volume of enquiries about IR35 the BBC received from its contractors.

Arguably, however, the broadcaster should’ve anticipated a surge in interest with the announcement of IR35 and prepared accordingly.

BBC and the CEST tool.

During the meeting between the PAC and BBC chiefs back in February, the BBC heavily criticised the CEST tool. They claimed that it wasn’t fit for purpose – despite HMRC’s insistence that it’s a viable employment status test – and blamed it for at least part of the issues now faced by the broadcaster’s self-employed workforce.

The BBC has used HMRC’s Check Employment Status for Tax (CEST) tool to assess the status of its freelancers since April 2017, as per the Treasury’s recommendations. The BBC, and indeed other public sector bodies like the NHS, had less time to prepare for IR35 than the private sector has subsequently been given, which could be used as a contributing factor (or an excuse) in many of the rash employment status determinations given.

The report states:

‘The BBC told us that results from CEST impacted an unexpected number of people, with 92% of 663 on-air freelancers between August 2017 and June 2018 assessed as 'employed for tax purposes'. This was in stark contrast to the BBC’s previous assessment in which most freelancers had been deemed as self-employed. It also told us that it had taken steps to improve communications with the individuals concerned, but it could provide no assurance on how successful its actions had been.’

BBC and settling tax bills with HMRC.

It’s clear from the PAC’s report that the BBC has a long way still to go to repair its relationship with those badly affected by its mismanagement of IR35 changes.

Yes, the broadcaster has agreed to meet some of the tax bill costs for many of its contractors, but exactly how much is yet to be determined. There are also a few questions that can be asked of that arrangement. Are the tax bills being paid out of the public pocket? Should the BBC cover the majority of the tax as it seems that many of the freelancers affected were in fact railroaded into their contracts? Are the BBC still using CEST to determine employment status? Will there be penalties for the management that failed the contractors in the first place?

The fact of the matter is that the BBC’s mistakes have caused some individuals, who have been loyal to the corporation for many years, great stress and financial hardship. Many workers are also concerned that they are now more likely to be investigated by HMRC because of their CEST determination, and the subsequent employee treatment they’ve received.

The BBC estimated in May 2018 that 300 individuals hired through PSCs warranted further investigation because their tax status was at risk of being challenged by HMRC. The broadcaster has recently started to provide some low-level financial assistance to individuals paid less than £45,000 a year and has set up a mediation process to handle individual cases. However, this has been paused while it seeks to agree, by the end of March 2019, a settlement with HMRC for outstanding tax claims.

If you’re worried about your own IR35 status, we offer contract reviews with comprehensive pointers on how to improve your IR35 standing as well as tax investigation insurance.

Larson Howie - BBC still to properly address IR35 failings