An interesting little tale about how the conversation changes upon a subject in the media. We’ll not claim all of the credit here, but at least as far as we know we’re the only people who have made this point in a major print publication. And once it has been made it has very quickly become an accepted fact, one that is simply stated, not argued over.
The BBC presenters row, much of the shouting has been about how they have been avoiding income tax by using those personal services companies. This isn’t quite the case, as the combination of corporation tax and that upon dividends is, by design, really very close to the amount that would be paid in straight income tax as an employee. That’s not, therefore, where the tax benefit lies at all. Instead, the tax which does get dodged is employers’ national insurance. We pointed this out in The Times under two weeks ago and, as we say, we’re reasonably sure this was the first major newspaper revelation of this point:
The combination of those two tax rates, upon company and dividend, is by design close to the rate which would have been paid on simple wage income. It isn’t, by and large, income tax that’s being legally avoided by such a scheme.
It’s also not employees’ NI. These schemes work best for those with significant incomes and the employees’ rate drops to only 2 per cent on earnings over about £42,000: not a figure that generates corporate structures to avoid it. However, employers’ NI is charged at 13.8 per cent on all wages. That is a significant sum when an individual’s income is £160,000 a year and more.
We had several private communications as a result of that piece from presenters complaining about how the BBC had treated them.
Shuffle on that not quite two weeks and we get the Telegraph telling us:
The BBC is facing a revolt by presenters being pursued by HMRC over what the stars allege was the corporation’s “industrial-level tax avoidance”.
There is growing anger that the BBC continues to deny that presenters were pressured to set up personal service companies, despite a recent tax tribunal ruling that to be the case.
The mechanism allowed the BBC to save millions by not having to pay National Insurance contributions.
Instead of anyone having to explain the point it is now just accepted fact that it is the NI which was dodged, the BBC which benefited from it having been so. Economists will argue about the incidence of employers’ NI, as we would ourselves in different circumstances. But in political terms the argument has most certainly changed, has it not?
The mechanism meant the BBC was able to save millions of pounds by not having to pay National Insurance contributions.
Now, HMRC is demanding tax off some of the presenters – with some being asked to pay hundreds of thousands of pounds – and believe the BBC should foot the bill.
Even the Mail has caught up.
As to the legal position here, no, once we’re dealing with an incorporated company then the BBC has no duty for tax unpaid at all. Any system of limited liability just cannot work if it does and whatever we think of tax dodging we’re not going to kill off the third great human invention after agriculture and the scientific method, that limited liability company. The BBC just doesn’t have to pay at all.
Although we’re talking media politics here, not economics nor the law, so the betting is the BBC will fold at some point.