It’s amusing how slowly it is that public understanding of a matter moves along. Take this story about BBC presenters dodging taxes by using a personal services company. The original claim was that it was the presenters doing so – not something that could really be supported. Rather, it was the BBC saving on national insurance payments, this making it the BBC which was the tax dodger. Yes, we’ve the incidence of taxation thing to add, but then the people doing the claiming always dismiss incidence arguments so we can ignore that for the moment.
It was possible to get that who is the dodger part corrected. Well, a bit at least:
BBC presenters have accused the corporation of “throwing them under a bus” by switching them on to the staff payroll in a move that leaves them facing higher taxes.
Many of the corporation’s stars have been reclassified as employees after taking official revenue tests last year, sources said. The changes mean they are no longer having their earnings channelled directly through personal companies and are instead paying the top rate of income tax.
The BBC is also now paying millions of pounds in national insurance for them. Some presenters have had their salaries reduced to fund this.
OK, there’s the proof of the incidence but we are indeed getting across the point there that this was about NI and it was the BBC which didn’t, in that first instance, have to pay it. But there’s still an error in the story:
Paying workers through personal companies allows an employer to avoid national insurance and means the workers are taxed as companies, avoiding income tax at source of up to 45 per cent and instead paying corporation tax of 19 per cent. This is legal. But if HMRC decides a worker is in fact an employee it can pursue back tax.
Well, no, that’s not right about income tax.
Taking the tax test
Workers who are paid through a personal service company can avoid paying income tax at source of up to 45 per cent and instead pay corporation tax, which fell from 20 per cent to 19 per cent in 2017.
No, really, no. Which is a pity. For if that reporter at The Times (Paul Morgan-Bentley, Head of Investigations no less) had actually read his own newspaper he would have seen this:
The scheme that HMRC objects to works like this. Instead of an employer paying wages subject to income tax and two sets of NI, employer and employee, the company invoices for services rendered. Some small amount of wages are paid, as normal. But the bulk of the income is liable for corporation tax as profit and is then paid out as dividends, themselves possibly further taxed.
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 really is all about NI, not income tax.
Wouldn’t it be useful if journalists read the newspapers? Even if only the one they’re employed by?