Can\’t we get this straight about service companies even now?

In evidence to the Public Accounts Committee, the BBC admitted that 148 of its 467 “on screen” presenters were paid through “personal service” firms rather than as ordinary employees.

Being paid in this fashion allows the employee to be taxed in part at the corporation tax rate of 21 per cent rather than pay as much as 50 per cent in income tax.

No, it doesn\’t, it really doesn\’t.

The company is taxed at the corporation tax rate: that is true. But if the employee of the company wants to take out a wage then normal income tax and NI is charged. And the profit upon which the company is paying corporation tax reduced, of course.

If the owner of the company (obviously, usually the same as the employee) takes out money as a dividend then the usual higher rate tax, if the money is sufficient to put them into those bands, is charged.

In terms of income tax there is very little benefit in this services company thing.

The advantage comes from the different national insurance treatment. Dividends are not subject to either employees or employers.

There are others: being able to wind up the company and distribute capital with no taxation. Income splitting, timing of income.

But the one thing that everyone says about service companies, that they provide large savings on income tax, is the one thing that they don\’t really do.


6 thoughts on “Can\’t we get this straight about service companies even now?”

  1. Indeed. And someone who is a TV presenter (rather than a reporter) is generally hired for the duration of a series to do contract work, whilst also carrying out freelance work for multiple clients over the course of a tax year.

    In other words, they’re not an employee, and anyone who claims they are is an ignorant moron who should be horsewhipped.

    The very existence of IR35, which means that anyone whose freelance work is really disguised employment (indeed, many people for whom it’d be unfair to make that claim are also caught up in it) has to pay full employer and employee NI, means that it is a straightforward and outrageous lie to claim that anyone who is paid through a service company is avoiding tax or NI.

    It’s particularly egregious to see journalists writing such stupid nonsense, given that even if they’re salaried staffers themselves, there is absolutely no way they’ve spent more than ten minutes in the industry without gaining a detailed understanding of how freelancing works.

    The only explanation for the Telegraph piece is that it’s deliberately misleading the ignorant salarymen who make up the paper’s core audience in order to stir up hatred for elitist libruls and the Beeb…

  2. I doubt that many now distinguish between INCOME tax and NI. NI always was a 2nd income tax, and didn’t the scottish cyclops merge them totally anyway ?

    So there is a saving on “taxes”, whatever those are named.

    Alan Douglas

  3. Offshore Observer

    As tim Points out the timing of income is quite important

    Of course if you are a very highly paid television presenter with a career lifespan of say 10-15 years you can also roll up the income in the company and then wait until the career is over and pay yourself when you are in the lower income tax bracket. Now is that evasion, avoidance, avoision or tax compliance?

    It is legal so it must be OK, Arnald can you help

  4. Alan: no, he didn’t. He shoulda, as should all UK governments since it stopped being at all insurancy decades ago, but he didn’t.

    OO: a version of that (although note that you’d be paying corporation tax in the year the income was generated in any case) might work for sports stars, or for reality stars under contract to a Cowell/Clifford figure. Not so much for TV presenters under contract to the Beeb, since “immediate burst of fame followed by rapid decline to nothing” isn’t how that sort of TV career tends to work.

  5. Presumably there is a disadvantage in selling yourself through a services company – that the employer can terminate the contract with the services company pretty easily whereas they’d have a much harder time firing you if you were a full-time employee.

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