Why the NAO probe into BBC PSCs warrants a closer look

Despite being the first truly independent review of the public sector’s off-payroll reforms to IR35, and even though it probes a very high-profile end-user, an investigation into the BBC’s use of PSCs by the National Audit Office has so far created fewer shockwaves than anticipated, writes Kate Cottrell of IR35 specialists Bauer & Cottrell.

There were some mild disagreements on the likes of the Twittersphere, a bit of semantics about the reactions of different contractor groups and raised eyebrows at the cost to the BBC of implementing the reforms (as of October 2018, the BBC has spent a whopping £1.5million on work to put the April 2017 rules in place, compared to the £7,550 average price tag per public sector body estimated by HMRC-commissioned researchers). 

Some have also suggested that there’s not a lot of ‘new’ information in the report, saying it really just confirms what MP-led hearings and actual BBC presenters have brought out of the shadows already.

But look closer at the small print of the NAO’s 41-page report, because it actually contains shocking and extraordinary revelations, which make very uncomfortable reading for our biggest taxpayer-funded broadcaster. It should also unsettle contractors too, despite the government’s claim at Budget 2018 that HMRC isn’t going to get retrospective with private sector IR35 reform from April 2020.

Firstly, there is the remarkable fact that the BBC could not “rely” upon HMRC’s CEST tool until very late in the day and only then, after all sorts of deliberations with HMRC. The majority of the BBC’s presenters came out as self-employed under the old HMRC guidance, but under CEST, the corporation was left  with 92% of them coming out as employed.  This seems extraordinary.

The real shock, though, is that the BBC paid over £8.3million to HMRC to avoid penalties. It is possible to make an advance payment to HMRC to prevent interest accruing but not for penalties. For penalty purposes you have either been careless or you have not. This is of course public money.       

It’s worth noting what the NAO says. “The BBC made payments of income tax and national insurance contributions on account to HMRC totalling £8.3 million, to cover any potential tax that it should have paid between April 2017 and the time at which an individual’s status became clear later in the year.

"Once the BBC had sufficient confidence in CEST, from August 2017, it started to recoup this money when it was certain about an individual’s employment status for tax purposes. It has not yet fully done so, in part because of concerns raised by individuals. By June 2018, it was yet to recoup £2.9 million.”

As stated previously, and despite the comparative lack of shockwaves, this is taxpayers’  money behind these payments and recoupments. With that in mind, I suspect that the BBC does not form any part of HMRC’s (/ HM Treasury’s) claim that the roll-out of the new rules in the public sector has been a resounding success.

Elsewhere, the NAO report reveals that there are a number of BBC presenter cases currently before the tax tribunals (aside to the 100 open investigations into BBC-related PSCs as of October 2018). Interestingly, most presenters went onto the BBC’s payroll in about 2013. Some presenters have had their cases heard but there is no sign of the judgments. Why not I wonder?

What we do know is that HMRC took retrospective action on 100 of these, as the NAO report sets out. Many were billed for the four years prior to 2013 and many for enormous sums. How on earth, in light of this, can HMT in their ‘factsheet,’ published alongside Budget 2018, state that HMRC will not go after contractors retrospectively, when private sector IR35 reform is introduced in April 2020?

As I said though, it’s not just contractors for whom the NAO report should make uncomfortable reading. This ‘investigation’ puts beyond doubt that the case of the BBC and its use of PSCs under IR35 is nothing short of an awful mess. It’s messiest most, perhaps, for those presenters with tax arrears who are now BBC employees.

To me, it seems that there is a total conflict between the BBC’s duty of care to its employees and HMRC changing IR35 guidance in the shape of the CEST tool, which I believe to be flawed. Both affected presenters and non-BBC PSCs should take note, because I am not aware of anything in HMRC’s powers that allow it to simply draw a line under past potential non-compliance on IR35, as strongly suggested at last month’s Budget. For a report that’s received a relatively quiet reaction in the short-term, the long-term implications here are stark.

With the proposed roll-out of the new off-payroll rules to the private sector, medium-sized and large businesses should take heed of the BBC’s experiences.