BBC stars’ tax battles blamed for self-employment crisis

The taxman’s battles with BBC stars have been blamed for helping to fuel a crisis in self-employment.

Presenters such as Kaye Adams and Gary Lineker have previously become embroiled in court battles with His Majesty’s Revenue and Customs (HMRC) over disputed bills, under controversial “IR35” rules.

The rules determine whether a worker is employed or self-employed for tax purposes. Contractors “outside” of the IR35 rules pay lower rates of National Insurance. 

But the laws governing off-payroll workers are causing companies to view hiring freelancers as too risky, after seeing high-profile taxpayers dragged into years-long legal action, a professional body for self-employed workers has warned. 

Andy Chamberlain, of the Association of Independent Professionals and the Self-Employed (IPSE), said: “Having noted HMRC’s dogged determination to win high profile IR35 battles with TV stars – brushing off successive court defeats in the process – hirers are concluding that working with freelancers risks inviting too much hassle from the taxman.

Research conducted by the body found that one in ten highly skilled freelancers is currently out of work due to reforms to IR35 legislation, in a survey of 1,300 self-employed people.

More than half said that they had turned down an offer of work in the past 12 months because it was deemed “inside IR35” by a company. This effectively taxes the freelancer as an employee, despite them often not receiving the same benefits as permanent staff, such as holiday and sick pay.

Mr Chamberlain added: “Our findings show that contractors want to prioritise clients who are willing to hire them on a freelance basis, and [are] happy to walk away from those who won’t – even if this means not working at all.

“This is a damning legacy for a Chancellor who claims to be on the side of business. If he is serious about cutting inactivity and growing the economy, he would get round the table with those who [are] dealing with the real-world impacts of these reforms and urgently address them,” he added.

It comes after Rishi Sunak reversed a decision by Liz Truss and Kwasi Kwarteng to scrap reforms to IR35, made in 2020, which make firms liable for any mistakes when determining if self-employed people are considered to be contractors or directly employed by a company or organisation.

The rule change was designed to help crackdown on “disguised” employees working as freelancers and paying less tax, but continually working at one business.

Television presenters at the BBC and other broadcasters have been pursued over disputed taxes for working via their own companies as contractors, but featuring heavily on the same programme or television channel.

Experts have warned the change in the rules has resulted in businesses simply refusing to hire contractors altogether, for fear of falling foul of the rules and landing in a legal dispute which could damage their reputation. 

This is despite a number of presenters winning their cases.

Kaye Adams beat the taxman in a nine-year dispute over her earnings as a presenter at the BBC last year after the Loose Women presenter was chased for £124,000 in income tax and National Insurance contributions after HMRC argued that she should have been taxed as an employee for her work at the broadcaster over a number of years.

Gary Lineker’s long-running tax battle ended in his favour last year after a judge rejected HMRC’s claim that the former England striker should have been classed as an employee of the BBC and BT Sport. HMRC had pursued the star over a £4.9m bill under IR35 legislation.

Other presenters have lost their cases. 

Former professional footballer and Sky Sports pundit, Neil McCann, lost his IR35 case appeal at the Upper Tier Tribunal hearing this week. The ruling leaves him with a tax bill in the region of £210,000. HMRC deemed that McCann had been operating as a disguised employee while engaged by Sky Sports, from 2013 to 2018 through his limited company.

The BBC continues to hire freelancers despite recent legal troubles faced by its contractors

There are substantial penalties if firms apply the rules incorrectly, as they face paying back any unpaid taxes to HMRC.

Last year, the taxpayer-backed funding body Innovate UK was hit with £36m in back-dated taxes after the taxman conducted a review of its hiring procedures for contractors.

MPs of the Public Accounts Committee criticised the legislation in a report published in February, arguing that it was “deterring legitimate economic activity” and that there was a “lack of confidence in how to apply the rules”.

The overall number of self-employed people has plummeted in recent years from a high of 5 million in 2019 to 4.2 million in 2022.

Every year, freelancers pay £1.5bn because the reforms cause them to be taxed as employees and not self-employed workers. The Office for Budget Responsibility, the official forecaster, originally estimated it would cost freelancers half this much.

A government spokesman said: “HMRC is committed to treating all taxpayers with respect and ensuring everyone pays what they owe under the law.

“These reforms are crucial to ensuring those who work like employees pay tax like employees and have already succeeded in raising an additional £1.8 billion. “There’s no evidence that they’ve had any significant impact on the overall demand and supply of labour, with those impacted making up less than 1pc of the total workforce.”