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 75.

    I expect a lot of BBC employees were 'shocked' about the MPs expenses scandal too.

  • rate this

    Comment number 74.

    If we had decent, properly educated policians, this would be solved.
    The real problem is Parliament aren't any real competition to clever tax accountants and lawyers. The legislation they propose and pass is not watertight enough to prevent those with enough money or brains to underpay their taxes compare with Joe Public.
    What they're doing is not illegal though so good luck to them.

  • rate this

    Comment number 73.

    So, now it's another group of public sector workers under fire, presumably for causing the mess we're in, and deliberately divided from 'the hardworking taxpayers who do the right thing'. Contract workers are not the problem and, clearly, the Tories are avoiding the real issue, namely, that the gap between rich and poor is unsustainably wide. The answer: redistribute wealth.

  • rate this

    Comment number 72.

    The public accounts commitee are shocked????
    I would like to know what they have been doing for the last 60 years or so if they have only just found out!!!

  • rate this

    Comment number 71.

    If you dont know how contracting works, you should really shut up.
    Contractors generally work for short contracts to fill a peak in a project which can relate to Private or public sector workMany like myself commute 1200miles/week .Even under IR35 where we pay taxes like permies We dont get sick pay, holiday pay or Contribution based Unemployment Benefit - MPs & Union Leaders do

  • rate this

    Comment number 70.

    If these people have had thier renumeration as such, have they given up thier pension rights or has this additional cost been aggregated up, if so the tax and NI advoidance is mucg greater!!!!

  • rate this

    Comment number 69.

    I am sure that our Chancellor with His own personal fortune comfortably secreted in a Blind tax efficient Trust and Our Beloved Leader and His Deputy both of whom Had families who made the big bucks out of advising on tax avoidance will be really shocked!

  • rate this

    Comment number 68.

    greed at the top yet again. this is shocking news and they should all hang their heads in shame. Especially those in power at the BBC who condone this behaviour.

  • rate this

    Comment number 67.

    @ 45. Jack S

    You are incorrect, the company's profits are subject to corporation tax on profits before the dividend is paid.

    Profit before tax 100 / Corporate Tax 25 (using large co. rate)

    The recipient (individual) is then subject to income tax on the dividend. This would be 75 (e.g profit less tax), which is then taxed at a net 22% (£17).

    Total tax take is £42 (£25+£17)

  • rate this

    Comment number 66.

    Shocks MPs does it? I wonder if they can claim expenses for that.

    Pot Kettle Black

  • rate this

    Comment number 65.

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

    Postingdude! Are you mad??
    Or to quote Mr McEnroe "You cannot be serious".

    I don't deny there might be one or two MP's able to take up your challenge, but that would be a maximum.

    Excellent Post!

  • rate this

    Comment number 64.

    @46 Why should the organisation be responsible?

    Would you inspect your plumber/window cleaner/mechanics tax records? If you hire a contractor it is up to them and their accountants to pay the correct tax bill as set out by HMRC.

  • rate this

    Comment number 63.

    Just listening to 5Live. I am finding it incredible that journalists probably saving tax being on this scheme are actually seriously interviewing tax saving companies about this! Really when ordinary people pay so much for being self employed, it does beggar belief that the BBC has allowed this to happen - saving the licence payer money indeed, which is what I just heard Chris Warburton say!

  • rate this

    Comment number 62.

    Isn’t it amazing, the government make yet another mess and wastes £40 million of taxpayers’ money then criticise the self-employed to divert attention

    Cover-Up Cameron strikes again

  • rate this

    Comment number 61.

    And MPs of all people maintain straight faces when spouting this kind of thing? Do they have any shame? I think I have answered my own question.

  • rate this

    Comment number 60.

    Agree with the many who say it's not illegal and most of these employees pay the correct tax, but that's not the point. Responsible employers, should always pay people on a PAYE basis where possible.

  • rate this

    Comment number 59.

    Was Jimmy Saville on a service contract?

  • Comment number 58.

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

  • rate this

    Comment number 57.

    It is a grey area but could be tightened up. Footballers are surely employed by their clubs on a contract, yet somehow get around this with tax loopholes and form companies. We need to look at what constitutes free lance, self employed status and when this becomes closer to being an employee contract. This area seems to be being abused and needs better clarification for tax purposes.

  • rate this

    Comment number 56.


    ".. I for one would welcome the chance to work as a 'contractor', preferably based in my own home...."


    Careful for what you wish. One large, loophole-savvy contractor to the BBC keeps its staff on 24/365 unpaid standly at home unless they put in leave etc.

    Whatever they're doing, if they don't drop it when called, it's deemed a disciplinary matter. Life?


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