BBC bosses warned over tax break television scheme

Error meant that BBC Trust was not told in advance about creation of two companies designed to benefit from creative industry tax credits

The BBC Trust has fired a warning shot over the bows of the corporation’s executives, calling on them to “have regard to the BBC’s reputation” following public criticism of the corporation’s use of a tax-break scheme to support high-end television.

A “procedural error” meant that trustees were not informed in advance about the creation of two companies designed to benefit from creative industry tax credits following chancellor George Osborne’s decision to allow cuts in corporation tax to high-cost British-made dramas, comedies and animation.

Despite the BBC not paying corporation tax, it set up Grafton House Productions and BBC Comedy Productions to take advantage of the tax relief scheme, which came into effect in April 2013.

Dramas made through the artificial outfits included The Interceptor and One Child and it is understood around £500,000 was saved using the scheme.

After the existence of the two companies – or ‘special purpose vehicles’ as the BBC called them – was revealed late last year, the BBC was attacked by the then chair of the public accounts committee, Margaret Hodge, who said it was “wrong for the BBC to deliberately set up an artificial structure to get taxpayers’ money as it is for Google, Starbucks and Amazon and they should stop it. I believe in the publicly funded service but they have got to behave properly”.

At a BBC Trust meeting in April, a number of trustees voiced their concerns about “the need to have regard to the BBC’s reputation as well as compliance with the tax rules” after BBC managing director of finance and operations Anne Bulford gave them an account of what had happened.

According to minutes of the meeting, Bulford told them that the Department for Culture, Media and Sport “had been keen that the BBC should be able to access the tax relief” and that “following discussions with DCMS and HMRC, the executive had established two separate “Special Purpose Vehicles” (SPVs) to access the tax relief”.

“She acknowledged that, due to a procedural error, the Trust Unit had not been notified in advance in this instance. She said that various safeguards had been put in place to ensure the SPVs were functionally, financially and organisationally separate from the BBC public service.”

It is not the first time the BBC has been attacked over tax arrangements. Politicians have been critical in the past of a tax avoidance arrangement where the BBC told some freelance staff who earned more than £10,000 a year to invoice through a third-party company, keeping them “off-payroll” – a legal way of reducing the corporation’s National Insurance liabilities.

The BBC changed its practices in 2012 after it was criticised by the influential public accounts committee for allowing around 1,500 presenters, including stars such as Fiona Bruce and Jeremy Paxman, to be paid through service companies.

A BBC spokesperson said: “The BBC is committed to investing as much money as possible into the shows audiences love and by applying for tax credits, we can invest even more money into our programmes. This in turn delivers wider economic and cultural benefits by ensuring productions are shot in the UK rather than abroad. It also allows the BBC to compete on an equal footing with independent productions, including those commissioned by the BBC, that use the tax credit.

“The UK Tax Credits are available to all productions which satisfy the clear, objective criteria set out in the relevant legislation. Having taken the appropriate legal, tax and regulatory advice, the BBC considers that it is best able to deliver the benefits associated with the UK Tax Credit via commercial subsidiaries. The government is aware of this approach and has voiced no objection. In addition to the company accounts being publicly available, this story has been in the public domain for some time.”

Meanwhile the minutes of the BBC Trust’s April meeting also said Trust members agreed “more needed to be done to reflect and represent better all parts of the UK population” as, although the BBC has “a strong, clear digital strategy in place”, “the full impact had yet to be seen” and “BBC Online’s reach at 50% had not grown in several years”.