Media contractors trading via limited companies have been delivering high quality and cost effective services across a huge range of disciplines to the BBC since the corporation was created. Attempting to force a change in working practices and contractors onto the payroll will drive up costs and drive out many of the most talented media freelancers who will quite rightly resent the government’s unnecessary intrusion into their business affairs, and find work elsewhere.
The result: license payers forced to pay more for less simply to satisfy a flawed, media-driven government tax avoidance agenda.
The responsibility for this latest ‘limited company contractor supplying services to the public sector’ witchhunt lies in part with Conservative MP Daniel Kawczynski, and looks set to be the latest example of the legitimate supply of business services by individuals to be demonised to fuel the government’s current moral crusade on tax issues.
According to an Associated Press story reported in the Guardian, Kawczynski claims that the BBC ‘has ordered freelancers to set up their own companies’. Kawczynski goes on to describe incorporation by BBC contractors as a ‘highly deplorable’ practice, implying that the entire affair is a tax dodge designed to avoid paying National Insurance Contributions (NICs). In response, the BBC told the Guardian’s Mark Sweney that the practice is commonplace and “is in no way illegal”.
Which is absolutely true. Why should the BBC pay employer’s NICs on behalf of freelancers who are not actually employees? The BBC’s procurement and human resources functions are only protecting license payer’s interests by insisting that individuals supplying their services on a contract basis do so in such a way as to minimise the risk of expensive employment rights claims. This isn’t a tax avoidance scam; it’s just standard business practice. The same standard business practice which is applied every day by UK businesses and much of the public sector.
Unfortunately, though, due to the repeated misrepresentation of the facts in media reports and the rather slim grasp of business realities held by many politicians, the matter is unlikely to end with the BBC’s reasoned and valid reply. Chairman of the public accounts committee Margaret Hodge plans to investigate the BBC’s policy, and so we may see a repeat of the ‘off-payroll’ rules scenario next applied to state-owned media.
If the government really has a problem with individuals operating as companies, then it always has the option of legislating so that small businesses pay the same amount of tax as employees. However, it is unlikely that such legislation would also provide for sick pay, holiday, pension contributions and a contribution towards the costs of running a small business. Costs which employees don’t have to bear because their employers do, but which contractors have to fund out of their own earnings.
Forcing contracting businesses to pay tax like employees without providing any of the benefits of employment or tax incentives of being in business will drive many of the UK’s highly skilled knowledge and creative workers out of the flexible workforce. This is especially true of our creative sector, where talent is in great demand outside of the UK and is also highly mobile.
Because the UK’s flexible workforce, alongside the creative sector, is one of its key sources of competitive advantage in the global economy, this latest witchhunt could contribute to putting the brakes put on recovery, resulting in much slower growth. As a result, we may all end up paying more tax for fewer services.