Should the BBC’s witchhunt for personal service company media and performing contractors such as Jeremy Paxman result in them joining the corporation’s payroll, it could backfire spectacularly, costing TV licence payers millions.
And the root cause of this TV licence hike would be a combination of the government’s desire for short-term positive headlines over ‘off-payroll workers’ and the woeful ignorance of the Public Accounts Committee (PAC), and its chairman Margaret Hodge MP, about the legitimate forms of trading allowed for businesspeople in the UK.
Should we all pay a premium to enjoy the best entertainment talent available, or be forced to watch the BBC slide into mediocrity because it can’t attract the best broadcast talent, simply to satisfy the combined onslaught on the BBC by the Coalition and the PAC?
In response to largely unjustified criticism by the PAC about the BBC’s talent hiring practices – which Hodge claims makes the Corporation “complicit” in tax avoidance – the BBC has created its own employment test. It is using this to determine whether any of its limited company contractors “displays the characteristics of an employee”.
We’ve yet to see exactly what form this test takes, but a report by Broadcast Now’s Jake Kanter suggests that 804 on-air performers generating over £50,000 a year in fees and trading via limited companies or as sole traders will be the first cohort to undergo the test.
Kanter speculates that performers who are subject to a certain level of editorial control – such as Fiona Bruce and Jeremy Paxman – will fail the test and be offered “staff jobs”. But at what cost?
Let’s look at the numbers. The London Evening Standard reports that Paxman’s most recent contract renewal saw him awarded £3m over four years. That roughly equates to an annual salary of £800,000 if Paxman were to be taken onto the payroll.
The BBC would be required to pay employers National Insurance Contributions (NICs) of 13.8% on top of this basic salary (it is not required to pay this on fees to contractor limited companies). So, let’s assume that the BBC caps its pay to £800,000 a year. Paxman’s net pay calculation would be this:
- Taxable income of £703,921
- Less employees NICs of £17,293
- Less income tax of £302,861
- A total tax bill of £320,154
- Net income of £383,766.
Because we’re assuming the total costs to the BBC would remain the same at £800,000, there would be an employer’s NIC bill of £96,079, which in our model Paxman is effectively funding himself, resulting in £416,233 paid to the exchequer.
Currently, assuming Paxman’s £800,000 a year fees are billed by his limited company and he pays himself the full amount each year, his business’s financial profile might like this (excluding all his non-BBC work):
- Revenue £800,000 per year
- Corporation tax £178,750
- Profits of £621,250
- Dividend taxes of £175,124
- A total tax bill of £353,874
- Net income of £446,126.
Compared to the payroll option, this example would leave Paxman up to £62,000 a year out of pocket. Some might say that’s 62,000 very good reasons to jump ship to ‘private sector’ broadcasters, as many other performers have done. The private sector of course takes a somewhat more grown-up view of remunerating top entertainers who attract huge audiences in a fiercely competitive global marketplace.
Alternatively, if the BBC agreed to maintain Paxman’s net income (his income after taxes are deducted) at the same level if he joined the payroll, it would result in an additional wage bill of £133,896 each year.
Let’s remind ourselves that Kanter tells us that there are 804 on-air entertainers earning over £50,000, and a further 5,319 limited company contractors on the BBC’s books.
OK, not many will be earning £3m over four years. But the increased wage bill resulting from forcing hundreds of highly paid performers and production freelancers onto the books is going to cost us, licence payers, millions of pounds.
Or, we will be forced to fund a second-rate broadcaster that can’t attract the talent we want to watch and listen to.
And all this because the government, supported by a committee of MPs, is unable to grasp some fundamentally basic business concepts, and has jumped on the anti-tax-avoidance bandwagon to score a few short-term media points.