The BBC and limited company contractors

It’s hard to not have heard about the BBC’s ‘scandal’ with their use of contractors in recent months (November 2012). It came to light that the BBC had around 2,000 civil servants who were contracting through their own Limited company and according to several reports they had made their own arrangements to pay tax and national insurance, which could allow them to contribute less.

In a nutshell these were civil servants who were offering their skills and expertise to the BBC through their own Limited company, were not on the BBC payroll and were hired on a fixed term contract.

Reports such as one from the Daily Telegraph, discuss how contractors pay just 20% corporation tax and are exempt from national insurance contributions. However this isn’t necessarily the whole picture, yes dividends are free of national insurance contributions, but the director/shareholder of the company will still have a personal tax liability, so it would be wrong to assume contractors just pay 20% tax.

There are obviously tax advantages to company ownership and an entrepreneurial attitude, would we have it any other way? After all people who start up their own businesses lose out in many other ways.

Challenges of Contracting

• Job security – company owners and contractors are responsible for finding their own work and often may be the first ones to be laid off. Thankfully though contractors are often in high demand from companies who have a ‘head count freeze’ and cannot hire any more employees, meaning contractors are the perfect solution to filling those gaps.
• Contractors are solely responsible for managing their finances, for example as a permanent employee you don’t need to worry about tax, VAT and national insurances, but a contractor would. A good contractor accountant though will be able to reduce the burden though.
• Contractors lose benefits such as sick pay, holiday pay.
• Pension, there’s no final salary scheme for limited company owners or even a company making contributions for them, they have to look out for themselves.
• HR, sales, marketing, administration support, bad debt collection, advertising, PR contractors who work through their own Limited company have to do all these themselves.

Surely it’s only right that contractors and other limited company owners receive tax breaks.

In summary, aren’t contractors vital to the BBC? Don’t they bring much needed new skills and expertise with them? Don’t they make the lumbering BBC far more agile and dynamic, contractors are far more mobile allowing the BBC to flex and change shape when projects come to an end and new ones start? We all want a modern, cost effective, efficient, fast moving BBC shouldn’t the use of contractor and freelancer work force be encouraged rather than criticised.

For more information on working through your own limited company, please click here to download our 60 page guide to contracting.

Or speak to one of our friendly experts on 01442 275789 or email newbusiness@sjdaccountancy.com.