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 55.

    Margaret Hodge is guilty of political scapegoating here. She should be ashamed. Many of these folk are specialists in their field on genuine short term contracts who comply fully with the regs of IR35. It is neither appropriate or sensible to employ them on long term BBC contracts, with the enormous add on costs (holidays, sickness and PENSIONS) that this entails.

  • rate this

    Comment number 54.

    MPs shocked? From what's been in the press in recent years I rather think MPs are experts in all things dodgy, so why pretend to be innocents now? Utter hypocrasy.

  • rate this

    Comment number 53.

    "33. postingdude
    Would every MP who has not used Tax Avoidance please step forward and say I am clean on this issue please take a look."

    If you pay into a pension or an ISA you are avoiding tax. If you pay someone to do a job cash in hand you are avoiding tax (though illegally). How many people do you know to whom no of the above apply?

  • rate this

    Comment number 52.

    Rich or poor we should all pay the actual tax owed on our level of income - complaints about people richer than us not paying their fair share ring hollow from anyone who pays cash in hand to a tradesman to deliberately avoid VAT.....

  • rate this

    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.

  • rate this

    Comment number 50.

    Change the law then because this isn't illegal.

    And if "It's wrong that individuals working in the public service aren't paying their fair share of tax", it's also wrong that people in the private sector aren't either. I wonder were it happens more?

  • rate this

    Comment number 49.

    here we go, the great unwashed getting dumped on again. Now I know why I keep shouting at the TV/Radio, for them to ask the right questions, when they have someone who has fiddled there expences/taxes etc.

  • rate this

    Comment number 48.

    @29 That's all fine and well saving on NI contributions, however, by not contributing to NI you fail to pay into your full state pension scheme so who pays for that then? When all is said and done those employees at the BBC on this scheme are avoiding tax therefore the BBC and the individual should be held accountable.

  • rate this

    Comment number 47.

    The only thing here that really bothers me is that it is always the honest PAYE Joe in the street that subsidies absolutely everything.

  • rate this

    Comment number 46.

    This is down to the organisation to police. In most cases they are probably knowingly permitting the legal tax avoidance.

    The line managers who permit this should be held to task. There should be a justification process prior to it being permitted. The simple test of exclusivity is not sufficient.

  • rate this

    Comment number 45.

    Let's get some facts straight. Any private company money paid out in dividends is by definition profit & subject to 20% corp tax.
    Secondly, dividends over the higher tax band pay tax at 22% (which is 32% minus 10% tax credit)
    So in fact, for most of the income at least 40% tax is paid.

    The system is unfair, what we should be asking ourselves why wealthy people with income from shares pay less tax

  • rate this

    Comment number 44.

    As an engineering contractor I was once approached by the company who were handling Jimmy Carr's tax liabilities, one of their selling points were "It is perfectly legal, otherwise 75% of MP's wouldn't be using us and similar schemes" Makes you think...

  • rate this

    Comment number 43.

    This is disingenuous because it is the M.P.s who make the rules. In Italy there are enormous scandals at the moment about people who don't pay any tax, but it seems we are almost as bad - albeit in a very British way.
    If these people don't pay their fair share of taxes, the rest of us have to pay more to fund the same level of public services

  • rate this

    Comment number 42.

    If these people have the same arrangements as normal contractors then it's not much of an issue. Though the individual may gain in lower taxes they also lose out from having no employer pension contribution, no paid leave (holiday or sickness) and no job security beyond the length of their contract (with no pay off when leaving).

    It depends how the run the scheme though.

  • Comment number 41.

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

  • rate this

    Comment number 40.

    @ 8.2008marcus - you miss the point.

    Opportunities to avoid tax should be restricted but when Labour/Unions/Public Sector workers are bleating on at the rich for avoiding tax then they need to be completely clean.

    As we saw with Ken Livingstone's tax avoidance, the left are usually the most hypocritical people out there. It's not illegal but they're doing exactly the same as the rich.

  • rate this

    Comment number 39.

    What is really shocking is that more companies don't save both themselves and their employees a stack of money by making use of the same techniques. I for one would welcome the chance to work as a 'contractor', preferably based in my own home with only occasional trips to the office to meet people and deliver my work. Cheaper and better for the environment.

  • rate this

    Comment number 38.

    The BBC has been behaving like the 'Vatican' and or a secret society on the issue of pay to the so called 'talent' working for the BBC. Please remind me again, who funds the BBC?

    It has always been the case in the UK, one rule for the rich and one rule for the rest of us.

    The proverbial is going to hit the fan very soon. And I will be so delighted to see the faces of the so called talent.

  • rate this

    Comment number 37.

    This 'issue' is fake. Freelancers are not entitled to company benefits in kind, holiday pay, health insurance, pensions or any of the many other benefits that employees enjoy. This isn't anything more than a viable way for freelancers to work. The 'shocked' MPs are trying to make a scandal for political ends. It's their faux concern that's dishonest, not the lawful behaviour of freelancers.

  • rate this

    Comment number 36.

    Interesting to note that the last attempt to control this (in 1999) was supposed to bring in £300m pa - which was no doubt spent in anticipation. It's actually brought in about £2m pa. Hopeless.

    This sort of thing is impossible to control whilst we have a tax system that is full of politically motivated distortions


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