Hundreds of BBC freelancers are facing colossal retrospective tax bills, and HMRC’s CEST tool (short for Check Employment Status for Tax) is being blamed by chiefs of the national broadcaster.
Criticism of the tool, which is used for determining the IR35 status of contractors across the country, was heard at a Public Accounts Committee meeting held in Parliament yesterday.
What impact has CEST had on the BBC?
Since the application of the CEST tool, hundreds of workers’ employment statuses have shifted.
Those that have always been found outside IR35 are now being determined as inside, and BBC chiefs are pointing to the use of CEST as the cause.
BBC Director Lord Hall commented that ‘from 2017 onwards, [they] were surprised by the way the outcomes of the tests that [they] had been applying perfectly legitimately and properly before were suddenly changed by CEST.’
The BBC has struggled to grasp how to apply HMRC’s tool since they first adopted its use, and financial consequences are now being felt by its freelancers and contractors that could be life-ruining.
Roughly 800 workers so far have been issued backdated tax bills after their employment status was changed by CEST. Many will face bankruptcy in order to pay the phenomenal amounts back.
Why is the BBC criticising CEST?
During the PAC meeting, BBC chiefs related their main grievances when determining employment status.
They were asked to convey how they put the tool into practice and, although their methods weren’t necessarily proper, it was clear that they hadn’t misused CEST when assessing employment status.
Most of the problems raised could be traced back to 2017 – the introduction of CEST.
Lord Hall directly compared CEST to an employment test developed with Deloitte, a UK-based financial advisory and tax service company, back in 2013. Their test – which had the sanction of HMRC – determined around 900 out of 1,000 BBC contractors to be legitimately self-employed.
Lord Hall also insisted that the radio industry guidelines have always been ‘strictly adhered to’ when determining employment status previously.
The main CEST issues that BBC chiefs brought to light were:
- the lack of a launch schedule and little to no training during roll-out,
- no indication as to the volume of contractors that were due assessment,
- CEST itself seemed rushed and untested,
- no way to input sectoral differences for consideration.
All of the above are common criticisms that have been repeated to HMRC since the tool’s launch. The taxman insists the tool is fit for purpose.
Anne Bulford, BBC Deputy Director, said of CEST: ‘The challenge that we faced was that CEST places different weight on different factors when compared with our previous test. I don’t think they [BBC staff] have done anything wrong.’
What is the BBC doing to protect its contractors?
The BBC has accepted its part in these changed employment determinations. The broadcaster is now working towards a settlement with HMRC to protect its freelancers from the potentially devastating impact of having to pay a retrospective tax bill.
Lord Hall also admitted that many contractors may have had little choice in their use of limited companies due to the BBC’s contract specifications.
The chiefs were questioned as to whether BBC contract workers were told to operate via limited companies or have their engagements cancelled after multiple accusations came over the last year.
Ms. Bulford conceded that the BBC ‘has saved between £2m and £3m per year in employer’s and National Insurance contributions since Off-Payroll was introduced as a result of engaging limited companies and sole traders.’
The Deputy Director also stated that the BBC had warned HMRC in 2016 that the employment status changes were ‘coming in too quickly and would cause huge difficulty’.
Despite this, HMRC insisted that the BBC continue to use CEST for their status determinations.
Could CEST have similar effects on other UK businesses?
In response to the 800 BBC workers now facing bank-breaking retrospective tax bills, Lord Hall appeared remorseful of the situation. He said: ‘I take no joy at all from being at odds with people who are front line to our viewers and listeners. None, and I want to repair that relationship.’
The damaged relationship between the BBC and its freelancers has been reported on before, and comes as no surprise.
A report carried out by the National Audit Office looked into the impact of the IR35 reforms on contractors hired by the BBC and found that, although the broadcaster was indeed taking steps to fix the circumstances, issues still remain unresolved.
This same relationship breakdown between business and contractor is likely to be repeated across the county through the continued use of CEST, particularly now that it’s garnered a reputation for producing an overwhelming proportion of inside determinations. The climate for contractors and freelancers is increasingly hostile in the face of IR35 and the use of HMRC’s faulty tool could be seen as unsupportive of workers.
Lord Hall’s final comment was a further warning. He said:
‘HMRC should be thinking very hard about the difficulties created by rushing into something which was more global in nature, and which we still haven’t worked through the consequences of now.’