BBC scrutinised by HMRC but it’s the reporters that pay the price.
By Dave Chaplin
The IR35 case of Christa Ackroyd Media (CAM) Ltd v Revenue & Customs has had widespread media coverage over the last few weeks. HMRC defeated the BBC presenter in the first IR35 ruling in seven years, resulting in a massive tax bill of ￡419,151.
This is the first IR35 judgment to emerge from a number of appeals involving television presenters operating through personal service companies (PSCs) and we are already expecting further significant rulings to ensue as other presenters (such as Nick Knowles) come under scrutiny.
Is Ackroyd picking up the BBC’s avoided tax bill?
The BBC insisted that Ms Ackroyd work for them via her personal service company, and therefore avoided employment rights costs and employer’s NI in the process. That’s the essence of IR35 – working as a contractor under IR35 means paying your usual tax liabilities whilst being exempt from any employment rights and paying your employer’s NI to boot.
For years, the flexible workforce has sought amendments to the legislation to redress the balance so that those caught by the legislation, often unwittingly in the case of Ms Ackroyd, do not face disproportionate penalties.
Interestingly, had Ms Ackroyd’s engagement been subject to the new IR35 rules, introduced in April 2017 in the public sector, then the liability for the unpaid employers NI would have fallen squarely on the BBC. Which, does seem fair - after all, employers NI is supposed to be paid by the employer.
So what next for the IR35 reforms?
We know that these reforms could be rolled-out into the private sector as soon as April 2019, not just adding significantly to the workload of companies but also injecting a fear factor; if HMRC pursues an organisation for misclassifying a contractor’s employment status, that organisation could be found liable for backdated taxes, penalties and interest.
It is easy to see why many organisations in the public sector issued blanket bans of engaging contingent workers using limited companies, and instead pushed many genuinely self-employed contractors into “false employment”. But this is having a significant impact on the public sector and will have a greater impact on the private sector which also heavily relies on the flexible workforce.
HMRC is under the illusion that these reforms will yield more tax for the coffers. But encouraging false employment is like pouring glue on the flexible workforce and is not the way forward. We need a tax system which is fair, and enforced properly by HMRC.
If HMRC is bent on having the public enforce tax legislation, it needs to be in everyone’s best interests to get it right and we cannot have a scenario where the workers have no bargaining power and employers have little to lose either way.
The case of Christa Ackroyd is a shining example of what can happen. Ms Ackroyd now faces a massive tax bill whilst the BBC faces no liability whatsoever, despite the organisation’s insistence that she works with them in this way.
The French politician Jean-Baptiste Colbert famously declared that “the art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the smallest possible amount of hissing.” When it comes to HMRC’s latest reforms, it is killing many of the geese and others are flying away. And that will be a disaster for the UK economy.
About Contractor Calculator - We’ve been online and independent since 1999. Still owned by founder and former IT contractor Dave Chaplin, the business has grown dramatically since then to become the expert guide to contracting. The team have created a free independent IR35 testing tool to enable contractors and agencies to ascertain their IR35 status. Developed with input from employment law status experts, the IR35 Test was first released on ContractorCalculator in 2009 and has already been used by over 100,000 contractors. To reduce your risk of investigation and tax liabilities visit www.IR35testing.co.uk to take your free test now.