A senior tax specialist said the switch yesterday by Mr Birt, the new director- general, from being a freelance consultant to staff member would probably prompt the Inland Revenue to review the agreement, which had run from 1987 when he joined the BBC from London Weekend Television. He said the BBC probably would have demanded an indemnity from his company, John Birt Productions Ltd, against any future liabilities should the arrangement prove unsatisfactory to the Inland Revenue.
Employers are liable for all payments, which leads firms to play a 'straight bat' as far as tax is concerned. It is assumed the BBC would have demanded guarantees from Mr Birt's company.
An Inland Revenue spokeswoman, while refusing to discuss Mr Birt's tax affairs, said that yesterday's switch might be regarded as a simple change in status which did not warrant further investigation. However, she added that merely because the arrangement had been in place for at least five years did not necessarily mean that it had been given the all- clear by tax inspectors.
Details of Mr Birt's tax arrangements were revealed in the Independent on Sunday after documents filed at Companies House showed that his company had a turnover in 1991 of pounds 163,141. The bulk of this was made up of his consultancy fee from the BBC, put at between pounds 135,000 and pounds 140,000. Through his company, Mr Birt paid himself only pounds 59,000 while off-setting a long list of expenses against tax, including clothing and theatre visits. His wife Jane, a painter, was paid pounds 14,000. There is no suggestion of any illegality.
Accountants estimated that Mr Birt would have saved about pounds 12,000 on his salary alone, before other potential benefits from off-setting expenses against taxes were taken into account.
The major savings to the company would have included the cash flow advantage of paying the taxes sometime after the accounts were filed, any benefit that might have arisen from his wife's earnings if she were subject to lower tax thresholds, and the ability to make unlimited payments to his pension scheme.
But Mr Birt's company would have been liable to make national insurance contributions and pay income tax on the couple's earnings, and meet administration and accounting costs.
Even so, Moira Elms, a senior personal financial manager at Coopers and Lybrand, said that establishing a service company was not a simple process as the Revenue always examined such arrangements closely to ensure there were good reasons for the set-up. Loughlin Hickey, of KPMG tax advisers, however, was surprised Mr Birt had been able to reach such an arrangement with the BBC and the Inland Revenue because of his high- profile role at the corporation.
But he said John Birt Productions Ltd could be liable for back taxes. 'It is probable that the BBC has some kind of indemnity from Mr Birt's company because it is up to those (the BBC) making the payments to ensure that the person is not employed and thus liable to PAYE. If so, it's the BBC which would have to pay in the first instance.'