The BBC and service companies

You may have seen reports recently about how the BBC pays some presenters and other specialist staff, suggesting that there is something underhand about our procedures. Nothing could be further from the truth and I want to explain clearly and simply why this is the case.

At the BBC, there are a number of overriding principles that we follow in this area. Firstly, everything we do is in line with HMRC guidelines, and we work closely with them to ensure that contracts do not result in any loss to the Exchequer. Secondly, we work extremely hard to make sure that we do not incur unnecessary costs that are ultimately borne by you, the licence fee payer.

And behind all this, we need to make sure that we support Britain's creative industries by giving specialist staff the ability to move around where necessary. Suggestions, therefore, that we are somehow facilitating tax avoidance are not only wrong, they are offensive both to the BBC and to the hard-working people who make and present our programmes. And they risk damaging a broadcast industry that ensures an uninterrupted flow of investment into UK content and adds significant value to the UK economy overall.

Let me quote you a senior figure on this issue: "There are circumstances in which it may be appropriate for an employer to engage an individual off payroll - and the fact that an individual is engaged off payroll doesn't mean that they are paying an incorrect amount of tax." Who is this? Danny Alexander, the Chief Secretary to the Treasury in the review that prompted this debate - the government's Review of the Tax Arrangement of Public Sector Appointees.

Now let me explain the details: Across the organisation, in common with every other UK broadcaster, the BBC makes use of freelance and service company contracts. At any one time, between 1,500 and 2,500 people employed as freelancers and fewer than 500 who are employed through service companies. These are people who provide skills 'behind the camera' such as directing, editing and other craft skills for a finite period. This is standard practice for people working across the industry.

Another group of people who regularly use service company contracts is presenters, as they typically work for a number of different organisations in any given year and they offer their services to the BBC and any other employer on self-employed terms. There are around 500 individuals with long term contracts paid in this way at the present time. It would be both unjustified and totally impractical to put all of these people on the payroll. By using the service company framework, which is set down by the HMRC, the BBC and other broadcasters can quickly and effectively contract people without having to undertake a lengthy detailed review of all their other work.

The service companies are not set up to help avoid tax. Once a service company is created, the individual has to pay the correct tax and National Insurance. We cooperate fully with the HMRC and provide them with annual reports of all payments made to individuals who operate service companies and provide all details required on any review they undertake. In addition to this we stipulate in our contracts that we expect individuals to settle their tax liabilities according to the HMRC guidelines in full.

Whether a freelance decides to set up a service company depends on their individual circumstances. But it is the preferred option for the BBC that talent are paid via a service company once a certain amount of work is being offered and HMRC are fully aware and satisfied with this arrangement. It is worth adding that we always recommend individuals seek independent advice on these matters as well.

It has also been suggested that we have forced people to set up service contracts rather than being a full-time employee. Again, this is not the case. We are not aware of any instance where someone who is eligible to be a staff member has requested this status and has been denied it. The BBC supplies the UK creative sector with a rich pool of highly skilled talent to draw from. This benefits large and small firms across the sector and helps the UK attract inward investment from those seeking access to some of the best creative expertise in the world.

We do this not only by producing some of the best content in the world but also by investing significant investment in training on skills used in our industry. The result is that we have a strong track record of nurturing talent across its TV and radio services, creating opportunities for new presenters, performers, musicians and writers that are not available elsewhere.

But we also do this by allowing creative talent the flexibility to move round the industry and to seek sources of income beyond the BBC. This does not only benefit the individual, it benefits the industry and the licence fee payer. And it does not mean - as no less than Danny Alexander has said - that they are paying the wrong amount of tax.

Zarin Patel is the BBC's Chief Financial Officer.