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 215.

    This is the result of having generations of "Red Ping - Blue Pong" elected inept - even corrupt - dictatorships.

    ALL our problems have to be the result of a democracy is not working.

    Ours is not working because the MPs are not listening to us and only represent their own narrow advantage.

    Time for a complete change.

  • rate this

    Comment number 214.

    Given that all these people are to all intents and purposes employees then they should be taxed via PAYE , what is a disgrace is that this was allowed in the public sector where they should be setting an example . The people under this arrangement wanted it as they are better off , be they labour /tory or liberal supporter . This government needs to get a grip of things like this .

  • rate this

    Comment number 213.

    MP's shocked!!! Good gracious!

    This coming from people who have been scamming the taxpayer for decades with expenses fiddles.

  • rate this

    Comment number 212.

    Business people and politicians have been doing this since time and memorial so why all of a sudden pick on a certain group of people, talk about being two faced

  • rate this

    Comment number 211.

    Many MPs are consultants and work as sole traders (in addition to their MP PAYE) or under their own company or a family member's company or previously did so before becoming MPs. Pot and kettle spring to mind.

  • rate this

    Comment number 210.

    Great to see champagne socialism alive and well during these austere times.

  • rate this

    Comment number 209.

    "197. stevie
    Isnt it the case that these type of arrangements .. are merely tax avoidance measures"

    No. If you earn £100 you pay 20% tax and 12% NI. If you have a company and earn £100 the company pays 20% corporation tax and you pay 10% on the dividends you take out but you aren't entitled to sick pay or holiday pay. Service companies avoid the need for employment contracts not avoiding tax.

  • rate this

    Comment number 208.

    200.Mr Taxpayer

    "How can certain people at the BBC earn 4 times the amount of the Prime Minister?"

    Good job he's fairly cool about it: one of the perks of his job is that he does have all those nuclear missile launch codes.

    It's not much of a job either: last time there was a vacancy they only got three applicants. . .

  • rate this

    Comment number 207.

    The tax system in the UK is in such a mess because it is tampered with by every government in turn and they just add to the rules and leave rules that can be used to get round the new rules. It is time that the present Tax Rule Book was thrown out and a simple new tax rule book was introduced so every one knows where they stand on tax and employment

  • rate this

    Comment number 206.

    Hold on a sec . . . 1) the majority of 'ordinary' public service workers pay tax through PAYE. 2) How many MP's are paid through PAYE? 3) Why start at the bottom of the tree for a few thousand pounds, what about the millions being hidden by the rich/multinationals?
    Typical Tory behaviour, trample on the little people a bit more.

  • rate this

    Comment number 205.

    Phil the Pill

    Contractors do not "avoid" tax unless they are being paid cash-in-hand or are making fraudulent tax returns.
    You need to learn a bit more about the tax system then. They can avoid tax by paying themselves dividends instead of a salary, and thus not have to pay employer's NI.

  • rate this

    Comment number 204.

    I blame John Birt. He shaped the BBC in the image the government of the time wanted.
    Who was that again? Who are in charge now?

  • rate this

    Comment number 203.

    I have been a freelance for most of my life and I set up my company back in 1984 after I got sick of the Inland Revenue transferring and loosing my tax documents again and again and quite happily putting me on emergency tax and laughing about it. I defend the right of people who con tract in companies, who are not employees to use a service company.

  • rate this

    Comment number 202.

    Oh,the irony of it all. The BBC writes its headlines as gloomily as possible, affects consumer confidence, then complains that tax revenues might fall and affect reduction in the deficit.....and meanwhile appears to be complicit in tax avoidance.

  • rate this

    Comment number 201.

    I work as Freelance computer programmer. When I started out I worked for an IT consultancy. They hired me out to 3rd parties at a daily rate, The difference between the daily rate and my salary created the profits for their shareholders. No one has suggests that constitutes tax avoidance. Yet when I set up my own company and hire myself out making profits for myself, I'm labelled a tax cheat.

  • rate this

    Comment number 200.

    How can certain people at the BBC earn 4 times the amount of the Prime Minister? They must have a good agent!

  • rate this

    Comment number 199.

    There is a lot of misinformation here. The disguised employee regulations are fine if applied correctly. Many freelancers are highly skilled experts that companies don't want to retain, or cannot afford to retain because the work in these areas comes and goes. Being an employee doesn't make sense if demand ebbs and flows. Freelancers often manage multiple clients. That's better for the economy.

  • rate this

    Comment number 198.

    Contractors 'work for a company'. The company is then paid for the contractors services, and the company then pays the contractor minimum wage, and therefore avoids most tax and NI. The Contractor is the sole owner of the company and either withdraws the 'profits' as dividens, and pays capital gains tax (less than tax and NI) or even worse 'borrows' the money and pays no tax at all

  • rate this

    Comment number 197.

    Isn't it the case that these type of arrangements enable those with this type of arrangement to pay income tax on a small part of their remuneration and take the rest in dividends taxed at a lower rate? Allowing this anomaly has skewed the statistics on small business start ups, where many small businesses are merely tax avoidance measures and employ nobody other than the company owner.

  • rate this

    Comment number 196.

    Are flat taxes the answer?


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