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

    Comment number 15.

    Yes, MP's - nobody likes our screwed up tax system that benefits the rich. The only difference is the rich can get away with "minimising" their tax, yet when the general public start doing it you start wailing like a banshee.

    Bunch of hypocrites.

  • rate this

    Comment number 14.

    Only a fool pays more tax than they have to. If something is legal then it's ok to do it. What's the problem?

  • rate this

    Comment number 13.

    Biggest eye opener for me was that the BBC have 25,000 people paid like this. Not the fact that they are paid like this but the fact that they employ so many people. If that is say, a quarter of all their staff, then they need to take a look at their staffing levels. That truly is a huge number of staff for the service the BBC provides.

  • rate this

    Comment number 12.

    Although the detection of tax avoidance is important surely now is as to what action will be taken now. Those that have deliberately avoided Tax should be sacked and a plan of action to prevent it from recurring

  • Comment number 11.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 10.

    The BBC has sold off most of its practical aspects.

    The contractors who now supply these services use many ex-BBC staff, largely freelance, and they generally offer no PAYE arrangement at all, irrespective of the freelancer's position.

    It's not enough to look at what's left of the public sector. The effect of privatisation on this issue is probably far greater.

  • rate this

    Comment number 9.

    It is obvious that self-regulation of any kind does not work in this country due to greed and corruption. Therefore it should be made compulsory that all benefits paid by any public body or company to a director or employee whether the account is held in the UK or not MUST be paid through a Central Clearing house. This would not only generate millions but save millions in tax chasers.

  • rate this

    Comment number 8.

    Don't go blaming the public sector blame the Government, they allow their rich millionare friends to use legitimate tax avoidance so why can't everyone?? Yet again one rule for the rich and the poor make sure YOU pay your taxes!!! If I had the opportunity I would do exactly the same as it is LEGAL.

  • rate this

    Comment number 7.

    Contracting to avoid tax has been around for years, and its odd that it takes so long before an eye is raised by a public accounts committee.
    It will take even longer to take any meaningful action to ensure contractors don't set up companies solely to avoid NI and tax. HMRC makes some IR35 investigations but most get away with it

  • rate this

    Comment number 6.

    As a private sector worker whose taxes pay for these armies of 'public sector workers', I don't see a problem here. If it reduces the payroll costs in the public sector, means public sector workers sort out their own tax and pension affairs like many of us do, and I pay less in tax to support them then I'm right behind it.

  • rate this

    Comment number 5.

    I have major issues with this:
    1. Organisations (govt and private sectors) do not want to invest in employees, and turn around and hire contractors. Short termism is their problem.
    2. Then then expect contractors to work all hours, no benefits or expenses and hence per hour usually earn less than a perm employee
    3. Politicians are scapegoating some for their benefit, not to improve the situation.

  • rate this

    Comment number 4.

    What I heard on the radio this morning was disingenuous, to say the least, and it smacks of more corruption and complacency within the public sector.

    No explanation was given why certain employees were singled out for such favourable treatment, when the rest of us on PAYE have our tax and national insurance deducted before we receive a penny.

  • rate this

    Comment number 3.

    What's the shock. Employing people on contract is the norm in private sector too. Supposed to save costs but now those same people have been given the same pension, holiday, etc rights I don't see the point any more. They should be directly employed and taxed.

    At the very least employers should notify the tax authorities of any contractual employment payments so tax returns can be checked.

  • rate this

    Comment number 2.

    Tax avoidance might be legal but it is not moral as the vast majority of workers in UK (generally lower paid) DO pay tax under PAYE.
    This government needs to implement a policy that ALL organisations they can control only have employees who pay tax under PAYE. This should apply to BBC, NHS, Education, Police , Civil Servants etc..
    There is a culture of fat cat greed in the UK that needs ending.

  • rate this

    Comment number 1.

    Many people in the IT and Engineering sectors work like this. They have a Limited Company they are paid though. The reason is, they often work on short term contracts, say 6 months or a year, and then work for another employer. This suits the person and the company they work for very well.

    But, if you are in the Public Sector I can't see why you would not be a full time employee ?


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