26 November 2018
The National Audit Office (NAO) has recently issued a report entitled ‘Investigation into the BBC’s engagement with personal service companies’, which looks at off-payroll working at the BBC.
As well as throwing some light on the extent off-payroll working within the BBC, it shows how a large public sector organisation struggled to cope with implementing the ‘Off-payroll working in the Public Sector’ (OPWPS) rules introduced from April 2017. This latter aspect may inform the proposals in the current Finance Bill to extend these rules to medium and large private sector organisations.
A history of off-payroll working
As BBC-watchers, as opposed to viewers, will be aware, the BBC has long been associated with off-payroll working going back to 1992 and the then newly-appointed Director-General, John Birt, being pilloried for his non-employed engagement with the Corporation. In 2012 the BBC was forced to review and change its practices regarding the engagement of both on and off-camera workers. The NAO report reveals that in 2017-18 the BBC engaged some 60,000 freelancers, including 5,145 working through Personal Service Companies (PSCs).
Slow progress from both parties
Whilst OPWPS was announced in the Budget in March 2016, a consultation was not carried out until August 2016. As the proposed rules moved the decision-making process as to whether a worker was employed or self-employed to the end-user, the BBC expressed concerns about its ability to cope with the assessment process and to adapt its systems to make payroll deductions on payments to limited companies.
HMRC did not finally introduce its Check Employment Status Tool (CEST) until March 2017 and, even though the BBC had a copy of CEST that was deemed reliable by HMRC in February 2017, it was impossible for the BBC to carry out all of the assessments that it needed to before the OPWPS rules came into force. Initial use of the tool for on-air cases produced ‘unable to determine’ outcomes in around half of the cases. Further work was undertaken on CEST with HMRC and by August 2017, a decision was being shown in most cases. 92% of on-air cases assessed up to June 2018 were shown as being employed, which contrasted markedly with the BBC’s assessments prior to April 2017, where the majority of presenters were deemed to be self-employed.
Whilst the BBC attempted to maintain the same gross amount paid out to the now deemed employed workers, it incurred additional costs in relation to Employers NI, which had to be met from existing budgets. In addition, where it was possible, some workers left for commercial organisations, which were not subject to the same rules as the BBC. The difficulties encountered with implementation resulted in the BBC paying £8.3 million in tax and NI on account to HMRC to avoid penalties and interest on amounts that may have been due between April and September 2017. These amounts were slowly clawed back as the assessment process progressed.
What does this tell us about the proposal to extend the off-payroll working rules to the private sector?
Firstly it’s good that implementation has been delayed until April 2020, allowing organisations to consider how to adapt their systems for both assessing status and paying workers.
The existence of CEST as a working tool is helpful, although many commentators have reservations about its scope, with no regard being given to Mutuality of Obligations.
Unlike the BBC, which seems to have engaged many PSCs directly, private sector organisations tend to use agencies to stand between them and the PSCs. This means that the agency is responsible for handling the tax deductions necessary and the private sector will not need to develop new payment strategies. Many agencies have also been dealing with the public sector, so have experience in dealing with the necessary deductions.
All in all, the extension of the off-payroll working rules into the private sector will not be quite the leap in the dark that it was for the public sector and the transition for private companies should be much smoother than it seems to have been for the BBC.
As with any measures included in the current Finance Bill, given current political uncertainties, no one can be sure that the new rules will come into force on the timescale announced.
Can we help?
If you have any concerns as to how the new off-payroll working in the private sector rules may affect your business, please do not hesitate to contact your usual UHY adviser.