Andy Vessey considers how much longer celebrities can avoid the IR35 trap door.
Many of TV's highest paid presenters are being remunerated via personal service companies, according to a Sunday Times report published last year, but where do they stand when it comes to IR35? The report detailed the earnings of several high profile BBC presenters who had opted to go down the freelancer route, reportedly following advice from the BBC and the enticement of greater riches.
Employment status is not simply a matter of choice but involves examining the facts of an engagement as HMRC continually remind us; so who came up with this brainwave? Apparently, it was HMRC itself when it supposedly recommended that the likes of Jeremy Paxman should either be employed or forced to form their own service company. We can only speculate that, for HMRC to intervene in this way, both the BBC (among other broadcasters) and the presenters themselves considered their relationship to be strictly business to business.
Such arrangements do, of course, suit all parties. The BBC foregoes its PAYE obligations and saves itself 12.8% employers NIC, and it isn't burdened with providing the individual with all the associated rights of employment, in particular the attractive pension scheme. The presenter is free to extract profits from their company in the most legitimate tax efficient manner they desire. With contracts worth six and seven figure sums, it is easy to see why the magnetic pull of self-employment is so strong for both Auntie and its wards (as well as other broadcasters).
Amongst those appearing as freelancers are: Jeremy Paxman (earning about £1m a year); Fiona Bruce (with annual earnings of around £500,000); and Fearne Cotton (who rakes in around £200,000 per annum)*.
However, not all presenters have fled the broadcaster's payroll, with the likes of Huw Edwards (Ten O'Clock News presenter); Nick Robinson (political editor) and Evan Davis (presenter of the Today programme) still prepared to suffer good old fashioned PAYE.
If Graham Norton (who earns £2m p.a), and Anne Robinson (earning £3m p.a), are not already contracting, then why not?
How is all of this possible when IR35 presents such a clear and present danger to these celebrities? On face value it is difficult to see how a picture of genuine self-employment can be produced when one considers the tests of employment status and how these have been applied by the courts.
A presenter or broadcaster is required to rehearse and record programmes within strict times at television studios. The content which they are expected to deliver is likely to have already have been researched and scripted for them, leaving only the manner in which they present the subject matter as a tenuous argument against control. Even then, there would be certain expectations regarding delivery.
The BBC pays top dollar for the personality to front their programmes. The notion that the presenter could send a replacement, sub-contract or assign their work is inconceivable. Perhaps if they are free to hire their own helpers, such as researchers, this may help to nudge the status indicator.
Mutuality of obligations (MOO)
Given that the courts are currently accepting HMRC's definition of MOO (i.e. if there is work offered and accepted and payment made then this is sufficient to establish MOO), then there is little hope in arguing that MOO does not exist for the duration of the contract.
What risk? The presenter receives a guaranteed fee which, for all intents and purposes, is tantamount to a salary, so there are no sleepless nights over where the next meal is coming from! It is also unlikely that any of that money will be invested in significant items of equipment essential to do the work, given that their trade is plied in the self-contained studio.
Part and parcel
Aren't the likes of Paxman and co part of the furniture at the BBC? That's how most of us would view them, and probably the Beeb too.
Given the big money being paid out, Auntie is likely to want to keep its celebrities on a very tight leash.
There are, of course, a number of other minor factors that can be considered, but even if I had Superman's amazing power of vision, I would struggle to see a picture of genuine self-employment. Even HMRC's 'Film and Television Industry Guidance Notes' do not list presenters as accepted self-employed grades. The new government has pledged to review IR35 as part of a shakeup of small business taxes in general; surely a celebrity IR35 challenge should be part of this agenda?
Andy Vessey is a senior tax manager at Qdos Consulting, an expert in IR35 and provider of IR35 insurance.
*The salary figures quoted in this article are taken from a report published in the Evening Standard on 9 February 2010.
Update: Since publishing this article, we have received a response from HMRC. An HMRC spokesman said:
"HMRC's statutory duty of confidentiality means we cannot comment on the affairs of named individuals.
"HMRC has a duty to ensure everyone pays the correct amount of tax. Legislation is in place to tackle arrangements involving the use of so called 'service companies'".
The rules around such schemes must adhere to the rules of 'IR35' which can be found here: http://www.hmrc.gov.uk/ir35/index.htm
"The legislation is not targeted at any particular occupation or business sector. It can apply in any business sector. Examples of occupations where people work through service companies run right across the board, including medical staff, chief executives of large PLCs, teaching profession, legal and accountancy staff, construction industry workers, IT contractors, engineering contractors, clerical workers and many others," he added.