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 175.

    Gotta laugh, really. So we don't talk about tax avoidance of multi-nationals and the mega rich, but ordinary workers and, erm, comedians, who dabble in a bit of same are Morally Wrong?

    Simplifying the tax system would save cash and get more taxes in, but then our aforementioned wealthy chums would have to pay too.

    Solution? Distract, divide and conquer. Genius!

  • rate this

    Comment number 174.

    Under a Freedom of Information request it was found that 134 MPs dodged £232,796 of tax over a period of three years. That`s almost a quarter of MPs. And they`re "shocked" when they find others are doing the same?!? Those in glass houses and all that..........

  • rate this

    Comment number 173.

    Are these the same shocked MP who invest in funds based in tax havens so they can roll up their gains year on year without having to pay tax? Or the ones who flip theri primary residence a few months before putting it on the market to avoind capital gains tax on a secondary home... We all avoid tax where ever we can so this shouldn't really come as a shock.

  • rate this

    Comment number 172.

    Maybe the Labour Party and other politicians who are envious of rich people will look closer to home and stop blaming successful people for all our taxation ills. Clearly a lot of us are up to this game and not just high earners but then most civil servants in Government are just that! The Accountants are to blame for deliberately cajoling people into using loopholes to avoid their correct tax.

  • rate this

    Comment number 171.

    "Why is dividend income only taxed at 10%?"

    Because the profit declared to pay the dividend has already been subjected to corporation tax. Income tax isn't the issue HMRC already designed the rules so that it doesn't matter much whether you take dividends or salary. It's NI where any savings can be made, there's a whole bunch of issues there that these comments don't give enough room to discuss.

  • rate this

    Comment number 170.

    Why focus on a minority of highly paid public servants? (can Ed Lester really be defined as a public servant?) The vast majority of public servants don't earn "tens of thousands of pounds" so they can hardly save that much in tax.
    Tax avoidance is ubiquitous in both the private and public sectors.

  • rate this

    Comment number 169.

    It's ironic that MP's should be shocked when other people are using a system to avoid responsibility!
    I wounded where we learned this from?

  • Comment number 168.

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

  • rate this

    Comment number 167.

    the MPs have revise their conclusions. Working as a director of a Ltd Company and for several employers on a contract is entirely legal and complies with IR rules. Inland Rev covers working arrangement this by IR35 regulations - the MPs should look at this first. Certainly this is carried out to a much greater extent in the private sector and another shot at the BBC is not warrented

  • rate this

    Comment number 166.

    #141 spagan said: "After 2014, we in Northern Britain will create a better society! We couldn't do worse!"

    You obviously don't remember T. Dan Smith and John Poulson then!

  • rate this

    Comment number 165.

    Nothing Wrong with free lance working and to be honest if you hve setup a limited company and are emplyed through it you still pay tax, NI, and also corporation tax plus the additon of not being paid for holidays or sickness so the HMRC is not really worse off.

    The bigger problem with FreeLance are the foreign workers that get paid and ship the money offshore before any tax is paid.

  • rate this

    Comment number 164.

    So when asked to close tax loopholes, they go after charities, and when that fails they go after the BBC. This isnt what the public had in mind.

    Until the govt tackle something meaningful in taxation (like Vodafone's 16bn waived bill or the Cayman islands secret accounts for example) im not convinced.

    This govt will never truly tax the rich.

  • rate this

    Comment number 163.

    152.caretakers Name one country in the entire world where people dont try to legally reduce tax bill

    Caveat - They have to pay tax in the first place to count.

  • Comment number 162.

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

  • rate this

    Comment number 161.

    I speculate that the spolight will turn onto Doctors and Consultants in the NHS in the near future. It will be interesting to see if this very high earning group of public employees are paying the full whack!

  • rate this

    Comment number 160.

    124. Ohsoeasy, the mechanism of incorporation that you desribe rarely saves any material amounts of tax because the company is taxed on its profits as well

    Company Profit 100 Tax 20

    Individual Dividend 80 Tax 18
    (assume higher rate tax payer)

    Total of 38 compares to PAYE 40. However the company has costs such as Companies House filings, preparing accounts etc. Get the full facts please!

  • Comment number 159.

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

  • rate this

    Comment number 158.

    To HaveIGotThatWrong and Editor.
    Yes you have got it wrong.
    You neglect to state that government policy forces that arrangement in the majority of cases.
    No mention of IR35 that the government brought in to constrain contract tax arrangements.

  • rate this

    Comment number 157.

    I think I just saw a politician who had turned green with envy linked in with a degree of jealousy.

  • rate this

    Comment number 156.

    "f you pay someone to do a job cash in hand you are avoiding tax (though illegally). "

    You don't actually know that though do you, plenty of reasons for immediate payment discounts that don't involve dodging VAT.


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