TAXING BBC SERVICE COMPANIES – FREE ADVICE FOR OUR FRIENDS AT THE BBC.
Much confusion has been sown by portentous media pronouncements that the alleged 25,000 BBC “Service Companies” pay 21% tax instead of the much higher payroll taxes deducted monthly from the BBC’s 20,000 employees. I am guilty of compounding the confusion by not having the energy in my tax-relevant blogs to correct the obvious media errors.
Substitute your own salaries /fees, accurate tax rates and tax-haven (false) invoices siphons. There are hundreds of variations on this simple scenario, including for example, John Superstar (JS) repatriating cash from Cayman to spend in the UK, which he will argue is non-taxable “Capital” while HMRC in the old days would have classed it as taxable income.
HMRC obviously collects most if JS is employed by the BBC, which additionally costs the BBC (1) JS’s holiday and sick pay, plus employment protection (2) The employer’s share of NIC National Insurance Contribution (3) Employer’s share of pension contributions (4) Serious amounts of employment red-tape.
JS’s best licit business “vehicle” is: JS, Sole Proprietor, Trading As JP Media. The accountant’s rule of thumb is the fewer “vehicles” between the client and their income, the cheaper, simpler and cash-safer it is. Any interposed “vehicle” will create tax-events as the money moves into and out of the vehicle – and often results in double-taxation. He can draw as much money as he likes without tax consequences. JS can cover his public and 3rd party risks with a professional indemnity insurance PII policy. JS may have to charge VAT (20%) to the BBC and remit it to HMRC – but the BBC gets it back. VAT has a nil-nil cash impact.
If JS’s fees go into a limited company (+ VAT where applicable), he can’t spend the cash unless he draws it out as salary, dividend or as capital-gains (by liquidating the after-tax net assets). HMRC thinks that insisting JS trades as a limited company will tie him down to the draconian impenetrable, indecipherable laws of The Companies Act and make him behave as a Director should, getting money out only via a Salary (pays full whack of employer’s AND employee’s taxes) or as a Dividend (pays income tax but saves the NIC element). Any limited company profits pay Corporation Tax (say 21%). The LIMITED LIABILITY may confer commercial protection on JS against law suits etc – but he should also have a PII. What HMRC turns a blind eye to – and so it seems do all UK auditors, is the temptation to either set-up this company off-shore (no tax until JS imports cash) or set up a second tax-haven company – that sends invoices to siphon off income.
It is not correct to say that BBC Service Company owners pay 21% tax. I hope this clarifies the issues.