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 35.

    strictly this is tax MINIMISATION, not avoidance,people on tempary HIGH paid contracts have legitimite use of Umbrella companies or their own IR35 proof schemes. The question needs to be raised when a person is for all intents and purposes and employee,i.e. on a long term permanent assignment ,even if it means 6 or 12 month rolling contracts. So it is too messy for Govt to intervene?

  • rate this

    Comment number 34.

    What gets me is the double whammy. Many TV stars do outside work eg adverts, conference hosting, after dinner speaking which can legally justify the service contracts, but ONLY get the work because of the fame they have gained through the TV in the first place, in the case of the BBC paid for by viewers through the licence fee.
    They should pay a tax surcharge to help reduce the licence fee.

  • rate this

    Comment number 33.

    Would every MP who has not used Tax Avoidance please step forward and say I am clean on this issue please take a look. After we have looked and found it is true we will listen to you, at present we don't listen to hypocrites.

  • rate this

    Comment number 32.

    Companies don't want to take people on short term contracts onto the payroll thus avoiding all the HR, pension and holiday issues. Those freelancers are then forced to work through limited companies and then take advantage of the ways in which they can pay themselves.
    The problem could be solved by making it simpler to employ people on short term contracts.

  • rate this

    Comment number 31.

    Employees DO pay tax under PAYE - this issue about contractors and free-lancers.

    Many employers can't recruit permanent staff for short-term requirements - that is where free-lancers come in handy.

    IR35 was introduced to stop people working "permanently on contract" but is such a badly written piece of legislation that it is failing to perform it's purpose.

  • rate this

    Comment number 30.

    Margaret Hodge keeps her ear close to the ground, surely? Didn't she hear any rumbling as Blair's New Labour gravy train came by? Was she oblivious to the "all in it together" waffle as tax dodgers came by in droves?

    Sounds like she's been caught napping.

  • rate this

    Comment number 29.

    As an accountant I'm shocked at the ignorance of whoever wrote this story. If you work 2 days here 2 days there a little subcontract work in between and its all going to change in 3 months then you are self employed and can form a company. You probably wont save tax by doing so but will save National Insurance. Then again you will lose out on holiday pay, sick pay and others. Basically none story!

  • rate this

    Comment number 28.

    As a taxpayer funded organisation the BBC should not be a party to these behind-the-door arrangements.

    It's really time the annual handout of TV tax to the BBC was stopped and it was dragged kicking and screaming into the 21st century. If it had to stand or fall on its own merits like other broadcasters I'd give it six months, tops, before it folded!

  • rate this

    Comment number 27.

    As far as I know tax avoidance is a legal means of paying less tax. How many MPs sitting on these committees fiddled their expenses yet at worst when found out were asked to pay some back , with no punitive measures imposed for breaking the law.
    "Or how wilt thou say to thy brother, Let me pull out the mote out of thine eye; and, behold, a beam is in thine own eye?"
    Matthew 7:4

  • rate this

    Comment number 26.

    Covering up for Jimmy Saville, helping people avoid paying tax. It is now time the BBC stopped being funded through the licence fee and had to stand on their own merits. Maybe the obvious culture of dishonesty and a lack of moral judgement will come under proper scutiny then.

  • rate this

    Comment number 25.

    The figures are shocking. The BBC is funded by the public. We are all liable to a fine for not having a TV licence.
    And yet that same body has actually advised people working for them to sign off-contract deals to maximise earnings.
    They have also been offered the services of in-house accountants to do this. So, they have been advising how to avoid tax in a tax-payer funded corporation.

  • rate this

    Comment number 24.

    IR35 is toothless, a friend of mine was "contracting" in the same job for 6 years, paying a fraction of the tax he would have paid under PAYE.

    It's a joke - the taxman needs to get heavy with these "contractors" & retrospectively collect the tax due.

  • rate this

    Comment number 23.

    I seem to remember that a few years ago one John Birt,when head of the BBC,had a somewhat idiosyncratic method of remuneration,which worked well for him until he was rumbled and told to become an employee like everyone else. Ah the great and the good.....!

  • rate this

    Comment number 22.

    I think your missing the point.

    It appears they are classed as self employed, but yet get a pension, sick pay, holiday pay, redundancy pay. No doubt their salary's are being paid into companies and they are drawing dividends as a salary (thus paying a lower lever of tax then PAYE). Whilst at the same time claiming expenses.

    I wonder if they'll be a Jimmy Carr style witch hunt?

  • rate this

    Comment number 21.

    So MPs are 'shocked' about these arrangements - which as a retired accountant I can tell you have been around for years across the whole business world. Is it the same sort of 'shock' that we all felt when the full extent of them having milked their expenses for years out of the public purse became known? Total hypocrites - every single one of them!

  • rate this

    Comment number 20.


    "...Biggest eye opener for me was that the BBC have 25,000 people paid like this..."


    They don't. A freelance cameraman for Match Of The Day, say, might get a separate contract for each job, one a week for much of the year.

    It's 25,000 contracts, not people.

  • rate this

    Comment number 19.

    Should be made illegal in the private and public sectors - together with all the other non-taxable benefits.

  • rate this

    Comment number 18.

    IR35 legislation was brought in a few years ago to try and close this loophole.
    Problem is that inland revenue is so beyond incompetent, the could not run a bath and so people still get away with the practice
    . The system is so convoluted and complicated , they (the tax man), most of all, don’t understand it !!! even a half asleep tax accountant runs rings around their systems …

  • rate this

    Comment number 17.

    Is the writer of this article impartial and unbiased with regards to their own tax affairs? I'm not accusing - it's just what faith can I have in any news relating to tax being reported fully and fairly by the BBC? Wouldn't that be akin to Obama writing the BBC the article about how the presidential debates went?

  • rate this

    Comment number 16.

    I guess this has nothing to do with getting more people onto the Labour party financing public sector unions books as public sector employees.
    Then they'll have to have pension rights, sick pay, holidays, redundancy et al.
    & why didn't Mrs Hodges party resolve this when they were in power for 13 years?


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