On this BBC tax scandal

We should remember who it is that actually saved tax here:

The BBC said yesterday: “We recognise that unless the rules are effectively enforced, service companies give an individual greater opportunity to reduce his or her tax liability than an employee whose tax and NIC [national insurance] are deducted at source.”

No, this isn\’t the case.

It\’s the BBC that gains the benefit through not having to pay employers national insurance at 13.8% on the entire pay package of the employee.

When you attempt to extract cash from a personal services company you end up paying pretty much the same amount of tax either way. Not exactly, but pretty much the same. And the difference is indeed dwarfed by the £13,800 per £100,000 of wages (ish, ish) saved by the BBC.

This is about the BBC tax dodging, not the employees.

And, to be honest, I can\’t see what there is to complain about. Tax funded operation pays less in tax so that the tax funding goes further doesn\’t particularly bother me.

10 comments on “On this BBC tax scandal

  1. I wouldn’t say it’s pretty much the same as using a service company allows things like income splitting, i.e. paying dividends to non-working shareholders (wife, children, dog etc).

    Allowing a greater range of costs to also be set against that income as well tends to increase the take home amount as well as giving the option of paying the dividends over a longer period of time and thus avoiding some of the more punitive tax rates.

  2. Umm, not wanting to throw a spoke in the wheels of the mighty TW juggernaut, but don’t you argue (correctly IMO) that employers NI contributions are almost entirely borne by the employee? So in the absence of employer NI contributions, the employee (or contractor in this case) should gain the difference as extra remuneration? Which would seem to be the case, because are not contractor rates higher than full time employee pay rates? Ergo the BBC is not saving anything in cash terms (its actually possibly paying more, but getting flexibility in return) and the extra cash will eventually be taxed as income when the contractor takes it out of the company?

    The State may be losing total tax revenue, as the employers NI contribution on a salary of say £50K is c. £7K, and if thats paid to the contractor, he’ll only pay tax as income, hence the State gets £2.5-3K in income tax instead. So the State has lost, the contractor has gained and the BBC is roughly where it was before.

    I’d say that the contractor was dodging tax not the BBC.

  3. So let me get this straight… the burden of employers NIC is on labour, except when… no, sorry, I just don’t see what the difference is here. Indeed, as we’re looking at people at the higher earnings end, it’s even more likely that the usual theory will hold true. The usual bargain made at that level is that the worker forgoes the protection of employed status, but gets the tax savings.

  4. If Jeremy Paxman is to be believed when he says he was told to either be paid this way or stop presenting Newsnight.. then one would imagine the BBC is making some savings..

  5. Let’s all pay 86.2% of the License Tax when demanded. Of course, we are not avoiding or evading tax, it is just more efficient that way.

  6. Would we not say that in deciding the wages in the first place, the burden of Emp NI was on the employee, but now those wages are set, if the Beeb stops paying it, the cash will end up in the Beeb’s pocket?

  7. Unless we know what people were paid as service companies and what they would have been paid as employees we can’t say a great deal about who saved money or how much.

    You can certainly say £100k to a service company is less than the cost of employing someone on £100k due to employers NI but we don’t know if that is what was done.

    For all we know the BBC may have been stupid enough to pay these people the full cost of employment in order to keep them off the payroll.

  8. Gareth

    What’s stupid about it? There are plenty of non/indirect financial benefits to these arrangements. The ‘loser’ in the transaction is HM Treasury… so it’s entirely conceivable that both the Beeb and the worker can deem themselves to be winners.

  9. alal the while creating a culture where you extract revenue under threat of imprisonment to fund an organisation fronted by people pushing propaganda in favour of big taxes and big governmnet, entirely comfortable in the realisation that the high levels of tax they advocate will be paid….by someone else.

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