Employees face only 20% corporation tax after having wages paid into service companiesTwo highly paid full-time BBC executives are able to avoid income tax because they are having their earnings paid into service companies.
The employees, each earning more than £100,000 annually, have been working for the corporation for more than a year and continue to do so. The tax arrangement could save them thousands of pounds, as it allows them to pay corporation tax of 20 per cent, rather than income tax at much higher rates. The revelation will be an embarrassment for the BBC at a time when tax avoidance has been described as "morally repugnant" by George Osborne.
The use of service companies is one of a number of tax avoidance measures that the chancellor vowed to clamp down on in his budget last month. Under rule IR35, individuals using service companies for their earnings should be paying full income tax and national insurance unless they are genuine freelancers with multiple sources of income and without fixed employment.
However, in response to an inquiry from Labour MP David Winnick about the number of BBC employees working full-time and paid more than £100,000 a year, Mark Thompson, the BBC's director-general, wrote: "We do have two service company arrangements in place for two individuals who have been paid more than £100,000 over the last 12 months, and whose work is now of a continuing nature, but who were both initially contracted on a fixed-term basis."
Thompson would not reveal their identities, but said that they were not in a "senior management position". He said the corporation was "reviewing both of these arrangements" to "ensure that their contractual status reflects their most recent responsibilities". He added: "We do not engage any other service companies on a continuous basis."
Winnick, who sits on the culture, media and sport select committee, said: "I think it is unacceptable that a constituent of mine earning £20,000 a year is potentially paying more in tax proportionally than highly paid executives at the BBC. It isn't fair, and I have called for the BBC to ensure that these people are paid in the normal way. I have written to Mark Thompson to ask him to inform me when he has changed the tax status of these employees."
According to a response to a freedom of information request from Tory MP David Mowat, the BBC pays 3,000 freelancers through service companies, of which 36 received £100,000 in 2011. However, those figures do not include "on-air" talent, which the corporation has refused to comment on as it could put it at a commercial disadvantage.
Mowat said he believed that the use of service companies by employees in continuous and full-time employment at the BBC must be investigated. He said: "The BBC, as an ethical organisation, should report themselves to HM Revenue and Customs [HMRC] and ask for a thorough review of the tax arrangements they have with these two individuals."
Tax has been at the centre of political debate since last month's budget. Last week, Osborne said he was shocked at the scale of tax avoidance and said he had seen "anonymised" tax returns submitted by multi-millionaires using aggressive avoidance schemes to reduce their tax bills.
HMRC found that the income tax rate among some of the highest earners was, on average, 10 per cent. Osborne said the HMRC study convinced him of the need to "take action" to ensure high earners pay more income tax. Tax arrangements have been a dominant theme in the London mayoral campaign
A BBC spokeswoman said: "The use of service companies is standard practice in the broadcasting industry and is entirely in keeping with HMRC guidelines. The great majority of these are people who have been hired to do specific jobs for a fixed period of time and when a person is contracted in this way it is their responsibility to organise their tax arrangements directly with the HMRC."
Article taken from The Guardian