Could the BBC be an MSC?

There’s been a lot of coverage of the use of PSCs (Personal Service Companies) at the BBC in recent months, re-ignited by the Christa Ackroyd case ruling that left the presenter with a real headache. In the last few days quite troubling accounts of the pressure that some BBC people felt they were under around their working structure have also come to light.

The case above was about IR35, which itself is going through painful changes as the responsibility for status decisions has now moved up the contractual chain in the public sector, with similar changes being considered in the private sector. That messy roll-out, and its unintended consequences have been well covered elsewhere. 

But looking at the BBC story overall, is it possible that some of the alleged activities might fall foul of a much more powerful, and for the BBC more onerous, piece of law? The Managed Service Company legislation (‘MSC’) aims to ensure that no-one is forced into one form of engagement or other, and that if any tax is avoided in the process, that this tax is collectable, not just from the individual involved or their company, but further up the contractual chain.

MSC has been around for over ten years but isn’t heard about often due to its very power – when it was introduced, providers quickly stopped using schemes that risked crossing the lines. This was due to the ‘debt transfer’ provisions included in the law – the principle that for an MSC case, unlike the original IR35 law, the cost for getting status wrong could be passed to agencies and other parties – not just remain with the contractor. As a result, there have been very few MSC cases.

The legislation requires two tests to be met. Firstly, an ‘MSC Provider’ has to be in existence. This could be a special vehicle set up to ‘run’ the arrangements, and is envisaged commonly to be an accountant or other professional running a ‘solution’ for a group of workers. The legal test though is whether the provider is ‘promoting or facilitating’ the use of PSCs. Insisting that people work through a PSC might be seen as ‘promoting’. The law also requires that a ‘discernible part’ of an MSC provider’s business is ‘promoting or facilitating’ these activities. This could be argued over.

If it is accepted that the first test is met, then it has to be shown that the MSC Provider is ‘involved’ in the PSC’s business activities. This test is normally much more straightforward than the first. ‘Controlling or influencing the manner in which the services are paid for’ is sufficient, and from what has been alleged, there may be questions to answer here.

There haven’t been many MSC cases at all over the years, due to the onerous consequences – although last year brought the conclusion of the Costelloe case. In this case, the MSC provider effectively conceded that they were an MSC Provider, and then argued the point on the second test, whether or not they were involved.  Legal commentators have pointed out that this was probably a strategic error, but in any event, HMRC won. We are told more MSC cases are in progress.

So could the BBC be said to have been operating in the form of an MSC? Certainly, they’ve been quick to start to talk about helping some of those with tax bills, but of course those arrangements are private matters in each case. Morally, they have effectively saved paying Employers NIC on the payments to the individuals involved. Mix in the apparent convenience of not having to think about the individuals as employees, even if they are now taxed as such, and this is if nothing else, an almighty, embarrassing mess.

Also relevant though is that the individuals setting up the PSCs to work through were obliged, like all UK taxpayers, to take appropriate advice regarding their own employment (and therefore IR35) status. Assuming they did meet the criteria to be ‘caught’ by IR35, and were working ‘as’ employees (as in the Ackroyd case) then they could have paid themselves as employees from their companies, rather than using dividends for a large part of their income. If they had, large tax demands would not be on the horizon for some of those affected.

Finally, if it was imagined that the individuals would get the right advice and therefore fully ‘payroll’ themselves from the income they received, it is important to remember that this would include paying employers national insurance from the PSC, rather than by the BBC. Was this understood at the time? Were rates increased compared to permanent staff wages, to account for this? Or was there a tacit understanding that the BBC could save some national insurance, do away with employer responsibilities, and the individual would agree because they might end up with more take home pay? Some might suggest the latter – but if so, did everyone involved really know what they were doing?

For clarity, the above is purely a discussion of the MSC rules and only a legal process could decide if they applied for the BBC or anyone else. But it is a salutary reminder of the wide reaching implications of the huge, complicated matrix of law we have around human resource supply chains. As ever, it’s clear that rushing any changes in this area is dangerous, and that fair, honest simplification is what’s needed. It may take a long time to get there.

Chris James is an IPSE accredited, award-winning Chartered Accountant. He is Head of Accounting Services at JSA Group, which provides accounting, payroll, umbrella and business advisory services to small businesses, contractors and freelancers across the UK. He also serves on the Board of the FCSA.