Tackling managed service companies: BECTU comments

19 February 2007

  1. BECTU is the trade union for workers (other than performers and journalists) in the audiovisual and live entertainment sectors. Over 10,000 of our members work as freelances and we have therefore had a long and close interest in all issues relating to tax status - including the issue of service companies.
  2. We note that HMRC/HM Treasury have identified a problem in relation to Managed Service Companies (MSCs) and that the resulting proposals draw a distinction between MSCs and Personal Service Companies (PSCs). We welcome the general statement that 'Personal Service Companies will not be within the scope of the measures, with the Intermediaries legislation remaining in place as at present'. Our concern is to ensure that this commitment is applied in practice and that genuine PSCs are not wrongly penalised as a result of the new proposals. We therefore seek guarantees on this point.
  3. As indicated above, over 10,000 of our members work as freelances - mainly in the film and broadcasting sectors. They work on feature films, on television productions (either working for independent production companies commissioned by broadcasters or directly for the broadcasters) and on a range of other productions such as television commercials.
  4. Within this pool of freelance labour, a significant number operate on a PAYE basis while another significant group have long established Schedule D status. These issues of tax status have been the subject of long and detailed discussion with and investigation by HMRC and industry bodies (including BECTU). The result has been the HMRC Film & Television Industry Guidance Notes, which include a specific and periodically updated list of grades or occupations accepted as having Schedule D status. The system is operated by HMRC's specialist units for film (in Washington, Tyne & Wear) and for television (in Salford).
  5. Within the group of Schedule D freelances, a number have chosen to operate through PSCs. Again, this is a long-established practice and has been fully recognised and investigated within the framework of HMRC's ongoing monitoring of the film/broadcasting sector as described above.
  6. Our members operating as PSCs have the following typical characteristics:
    • They operate as single individuals whose sole business is the hire of their personal labour (sometimes but not always with equipment) to the end client (ie the film/independent production company or broadcaster).
    • They are in business on their own account.
    • They exercise direct control over their own business
    • They do not operate through composite companies or Managed PSCs.
    • They are usually a director of their own company, sometimes in conjunction with their wife/husband. They will use an accountant to give specialist advice and prepare accounts but not to exercise any more general control over the company.
    • A small proportion of such PSCs will operate as partnerships eg 2 such members will work through a joint company to which all the above characteristics apply (ie they - and no one else - exercise general control over the company).
    • A very small proportion will, on some engagements, hire and provide the labour of another freelance jointly with their own labour (eg a cameraman might hire a sound technician and provide the client with the labour of both).
  7. Our concerns about the proposals in 'Tackling Managed Service Companies' can be summarised as follows:
    • We fear that the helpful general statements of intent (eg that 'Personal Service Companies will not be within the scope of these measures') will not be reflected in the actual drafting and operation of the legislation.
    • We fear that members with genuine PSCs may - wrongly - be assumed to be operating through MSCs without proper examination of the facts.
    • We fear that characteristics of genuine PSCs (eg use of an accountant for specialist financial advice) could wrongly be used as indicators of an MSC.
    • We fear that occasional additional factors (eg operation as a 2 person partnership, hiring of another freelance) could also be wrongly identified as indicators of a MSC.
  8. We therefore seek assurances that members operating as PSCs, with the characteristics set out in paragraph 6 above, will continue to be treated as genuine PSCs and not as actual or potential MSCs (including MPSCs).
  9. Additionally, we hope that there is full and continuing recognition of the HMRC's list of grades or occupations accepted as Schedule D and set out in the Guidance Notes referred to above.
  10. We therefore believe that the proposals set out in the Paper should not be allowed to disrupt the long established status - already closely monitored by HMRC's specialist units - of genuine PSCs operated by our members in the film and television industry. We look forward to being kept informed of the future development of these proposals.
Last updated 6 March 2007