Tax loophole used by BBC chief 'should be closed'

REVELATIONS that John Birt, the Director-General of the BBC, has avoided tax by being paid as a freelance consultant despite being employed full-time were yesterday described as the corporation's 'worst scandal by far'.

David Winnick, Labour MP for Walsall North, urged the Chancellor, Norman Lamont, to use his Budget on 16 March to close the tax loophole the case had exposed. He said the disclosure 'will not be appreciated by pensioners with small incomes, particularly where these incomes are taxed and where the pensioners are paying full TV licences'.

The broadcasters' union, Bectu, said it would be writing to the corporation demanding an explanation. Roger Bolton, responsible for the union's BBC membership, said: 'This is the worst scandal by far in the BBC. It will completely undermine John Birt and sets a very bad example. The governors who condoned it should resign.' One of the industry's most senior figures, who asked not to be named, said he believed such an agreement at the top of the BBC was 'without parallel'. He added: 'It is appalling for somebody in a public corporation accountable to Parliament to take tax advantages.'

Ann Clywd, Labour's heritage spokeswoman, said: 'This will raise a lot of questions. I would have thought Mr Birt might want to reconsider his position.'

Details of Mr Birt's tax arrangments were revealed in the Independent on Sunday. Documents filed at Companies House show that, as Deputy Director- General, Mr Birt was paid an estimated pounds 140,000 gross by the BBC and then paid himself a salary of pounds 59,000 through his private company, John Birt Productions Ltd. He offset a long list of expenses against tax, including Armani suits and theatre visits. Mr Birt, who started as Director-General at Christmas, also paid his wife Jane, a painter, a salary of pounds 14,000 through the company.

Accountants estimate he would have saved up to pounds 12,000 in tax on his salary alone, before any potential benefits gained by off-setting expenses. Such an arrangement would have also reduced his National Insurance payments. The BBC press office would not reveal whether other management figures had similar tax advantages.

The revelation has incensed the BBC rank-and-file, not least in view of difficulties faced by genuine freelancers who they say are frequently forced to pay tax at source even if they work for the corporation half or a third of the time. A long-serving senior BBC employee said: 'John Birt appears to have used his position to get around a problem that a large number of his staff are forced to accept.'

William Rees-Mogg, a former BBC vice-chairman, said other senior broadcasting executives, particularly those in ITV, were paid through private companies. 'It is very common to make such an arrangement when bringing someone across from commercial television, where salaries are higher. I would guess the majority of senior people in commercial television have their own companies.' But a leading tax expert, who asked not to be named, said it seemed 'rather unusual that a public corporation should not be actually employing its director- general'.

Stars in the entertainment world frequently set up private companies to manage their tax payments. This is not illegal and the Inland Revenue cannot easily challenge such payments. But it can insist that a full-time employee is put on the PAYE system rather than taxed on an individual freelance basis.

Tax experts believe that the company arrangement, given the cost of setting it up, mainly offers advantages to those who earn more than pounds 100,000 a year. The benefits include savings on tax, National Insurance payments and the ability to offset expenses against tax. A wider range of expenses are also deductible.

Those most likely to use a company as a payment vehicle are executives with several posts - perhaps several chairmanships - or people with service contracts who change jobs regularly.

Leading article, page 16