MPs voice concerns about 'off payroll' tax arrangements

 

Public Accounts Committee chairman Margaret Hodge: "It's wrong that individuals working in the public service aren't paying their fair share of tax"

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The tax arrangements of some public sector workers, including thousands at the BBC, have been criticised by MPs.

A Public Accounts Committee report says too many make their own arrangements to pay tax and national insurance, which could allow them to contribute less.

It said it was shocked to find the BBC had 25,000 such "off payroll" contracts - 13,000 for people who were on air.

The BBC said many of these were short-term contracts, but it was carrying out a detailed review of tax arrangements.

The Public Accounts Committee began its inquiries into off payroll contracts after it emerged earlier this year that the former head of the Student Loans Company was being paid via a company.

The arrangement - agreed by the tax authorities - potentially saved Ed Lester tens of thousands of pounds in tax.

It triggered a Treasury investigation across the government, which revealed that for more than 2,400 civil servants, tax was not being deducted when their wages were paid through PAYE.

Start Quote

"The public sector must maintain the highest standards of propriety in its employment practices”

End Quote Margaret Hodge Public Accounts Committee

Committee chairwoman Margaret Hodge said: "It was... shocking to find out that no fewer than 2,400 central government appointees were benefiting from off payroll arrangements.

"Furthermore, the Treasury Review only covered civil servants. Tax avoidance in the public sector goes much wider."

The Labour MP said avoiding tax and national insurance when paying public sector staff was "almost always staggeringly inappropriate".

She urged the public sector to "show leadership in the fight against tax avoidance" and should avoid the practice of using off-payroll arrangements for staff.

Jonathan Isaby, political director of the Taxpayers' Alliance, which campaigns for lower taxes, said many people would be "astonished" by the findings.

"People are paying huge amounts of tax as it is for this country and they will feel even more angry if they think that those in public bodies, in the government, in local councils, and indeed their favourite TV presenters, are not paying their fair share as well," he said.

John Whiting, director of tax policy at the Chartered Institute of Taxation, said some workers make their own tax arrangements for legitimate reasons.

'Disguised employment'

"If you are just an ordinary freelancer, which is very prevalent these days - anyone from a plumber to journalist - working here and there, working through a company, then it is a perfectly sensible way of organising your affairs," he told BBC Radio 4's Today Programme.

"What this report is targeting are people who are in what is often termed as 'disguised employment' - they're really an employee but they are putting the aura around them of 'No, I'm operating for a company'."

This, he said, was the charge being made against some BBC staff and some public sector workers.

Mr Whiting said the authorities did have a "notorious" anti-avoidance provision to deal with this, named IR35, which has been operating since 2000, however the MPs' report pointed out that this provision was "not that easy to apply" and it was not being applied in as many situations as it could be.

"Therefore, people have been getting away with it," he said.

The committee said it still lacked full information about the number of people employed by the National Health Service or in local government who were paid through private companies.

Members acknowledged that ultimately, whether or not staff with off payroll contracts were paying the right amount of tax was dependent on HM Revenue and Customs properly enforcing the rules.

'Complying with legislation'

But they also expressed concern that in recent years, HMRC had reduced its enforcement of legislation designed to eliminate tax avoidance through the use of intermediaries.

The BBC said that the actual number of people who were not paying tax at source was far smaller than the figures suggested.

In a statement, the broadcaster said: "In many cases an individual - such as an occasional contributor to programmes - could be issued with a contract each time he or she is booked to appear.

"We note the conclusions of the PAC report and will respond to the points raised as part of our detailed review of tax arrangements."

David Smith, the BBC's head of employment tax, said the corporation was "complying with the legislation that is there".

Mr Smith said: "It's not necessarily staff positions we are using the service company route for.

"These are people who are freelance by their very nature, or certainly that's the way their services want to be provided to the BBC and the use of the service company is therefore there to protect the BBC from any unexpected exposure should HMRC disagree with that position."

 

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  • rate this
    0

    Comment number 292.

    I am a freelance IT contractor. I provide my services through a company. My current contract is likely to last for about 18 months, but when it started it was only expected to be 6 at most. As others have said as a freelance I don't get many of the benefits people on normal employment enjoy, no unemployment benefit between contracts, no holiday pay, no sick pay.

  • rate this
    +1

    Comment number 253.

    Being freelance is O/K and getting tax breaks is fine, but one has to ask the question, how long are these short term contracts, if they last more than 12 months then they should be taxed at source just like any other worker. Lets get away from the idea that these people are special, when it comes to and taxes, We would all like to pay less, but sadly for some of us we can't.

  • rate this
    -1

    Comment number 251.

    As a contractor I resent being labelled a 'tax avoider'. I pay tax and NI at the appropriate rate (set by Treasury). It’s less than PAYE, but a competitive corporate tax rate is a government priority. You can’t have it both ways. And companies don’t have to pay the perks associated with perm staff; holiday pay, sick pay, bonuses or pension. Contractors benefit companies by plugging gaps.

  • rate this
    +5

    Comment number 97.

    Many people work off payroll. Many do so because the freelance nature of their work means that their 'main' source of income changes far more quickly than HMRC could keep up with, so it is more efficient to handle tax in one go.

    IR35 requires that they pay their Income Tax and National Insurance. The purchaser of the services is not avoiding tax, they are just paying it as part of the fee paid.

  • rate this
    +8

    Comment number 51.

    Is this really breaking news? People who work for multiple employers set up their own company. Company pays the tax required by law. Big corporation hires contractors so they don't have to pay them when they don't work.

    Tax avoidance should not be a dirty phrase, everyone pays the minimum tax they are required to. If some people get a unfair tax bill then its the tax laws that needs attention.

 

Comments 5 of 10

 

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