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
    +1

    Comment number 235.

    I would rather see a investigation into the tax fraud by the majority of self-employed and not the legal tax avoidance of a few.
    On behalf of all who are on PAYE and have the legal tax & NI taken from our pay, I would like to see everyone else cough up their correct legal amount.
    And don't give me the old story that the self employed don't get sick pay etc - they still use the NHS etc

  • rate this
    +2

    Comment number 234.

    atm19707 - "they" don't "have the same pension holiday etc. rights". You need your own company to tide you over the non-working times and provide for sick pay, holidays, pensions etc. It's not only fair, but by taking the risks and not claiming benefit we are providing a valuable service to the rest of the country.
    NB currently I have the time to write as I'm not earning my company money

  • rate this
    +1

    Comment number 233.

    This makes me absolutely incandescent with anger.

    There is a simple answer to this.

    ALL people working for publicly funded bodies pay tax and NI at source and can then claim it back afterwards. Job Done!

  • Comment number 232.

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

  • rate this
    0

    Comment number 231.

    //TwinDad
    11 MINUTES AGO
    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?//

    Actually, we DO talk about the people you mention.

    The point here is that public sector bosses want YOU to pay tax, and the BBC criticise tax avoiders, and are being hypocritical.

  • rate this
    -2

    Comment number 230.

    The fact is we have become a nation of tax dodgers ripping off society only to hand it to the mega rich.

    BBC used to be considered liberal left. Today it is rightwing pro Idle Rich, pro tax havens and anti society.

  • rate this
    +1

    Comment number 229.

    171 "It's NI where any savings can be made"
    Finally somebody gets it - this is about large corporations like the BBC dodging employer national insurance contributions (13.8% of salary) and individuals paying less national insurance than they would as employees. This is a major area of evasion. Vodafone underpaying corporation tax doesn't make this any less wrong when the country depends on NI.

  • rate this
    +6

    Comment number 228.

    I am a freelance IT consultant with a Ltd company and have been for 15 years. Yes I do pay myself a relatively low salary (which I pay PAYE and NI on). I also take dividend payments which I am taxed on mostly at the higher rate. My company pays corporation tax every year and VAT every quarter. I get no holiday pay and have to make my own pension arrangements. Now I am labelled a tax dodger!

  • rate this
    +4

    Comment number 227.

    I don't see why this is an issue - the bbc are hiring them for a specific period of time, they don't want to employ them.
    If someone designs a new website for my company I don't want them on the payroll - I just want to pay a fee to them for it.

  • rate this
    +2

    Comment number 226.

    I'd back up #97. Chris Moyles used to get a lot of attention over his pay etc but he wasn't a BBC employee. Legally he was a freelance so no sick pay if a show was missed etc.

    If someone was being paid 'off payroll' bit getting sick pay, pension etc that would be a scandal but this story seems none-news.

  • rate this
    +2

    Comment number 225.

    I've no love for our politicians, but those who constantly harp on about "all politicians" having their hands in the till over the parliamentary expenses scandal might just remember that the MAJORITY of MPs weren't fiddling their expenses. Tarring everyone with the same brush may be enjoyable, but inaccurate. It's like saying every man over 55 is overweight or only bald men over 50 buy sports cars

  • rate this
    +1

    Comment number 224.

    I wonder if the use of freelance in the Public Sector grew significantly when 50% tax and the removal of tax allowance for people earning over £100k was introduced

    As many have pointed out freelancing is used as a way to limit tax and NI. Its up to the employers to decide if they want to conduct employment that way. BBC could for example provide fixed term PAYE contracts.

  • rate this
    +6

    Comment number 223.

    @209
    Thank you!

    Consultants are hired for short term work - they have no employment rights and can removed with 4 weeks notice. Hence, for short term projects, consultants are cheaper than taking on a permanent member of staff who is redundant once the project has been completed.

    I don't avoid tax and I certainly don't evade tax.

  • rate this
    0

    Comment number 222.

    206.eibbed
    Margaret Hodge is a labour MP

  • rate this
    +1

    Comment number 221.

    What annoys me is that we constantly raise national insurance which these people do not pay.

    This means that the people with the biggest tax and Ni burden get an increase whilst those who pay the least are unaffected.

  • rate this
    +6

    Comment number 220.

    Front-page of Times today - "Liberty Takers". Anne Robinson squirrels away £4m in a Jersey company and pays only 7% 'fees' to avoid any tax -suspect this is also from 'off payroll' BBC earnings-what does she present-WATCHDOG- let's grill her in same way she likes to grill others-only this summer another Watchdog presenter was sacked forbeing guilty of benefit fraud. I hope Chris Hollins is clean

  • rate this
    +3

    Comment number 219.

    When the facility to avoid tax becomes a perk of the job then there is something terribly amiss. The private use of company cars is another perk. The captive Honest Johns on PAYE get stuffed to make up for those avoiding tax through perks.

  • Comment number 218.

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

  • rate this
    +2

    Comment number 217.

    What a bunch of spivs. Who else does Paxman and his ilk work for except the BBC?
    The Revenue should work out how much tax has been lost to the Exchequer by these schemes and the block grant to the BBC should be reduced accordingly.
    Alan

  • rate this
    +2

    Comment number 216.

    Using the system for ones own advantage is not wrong. It is the system that needs attention to stop it being used this way. Employers made employees work as Free lance when it suited their tax situation so Former employees taking advantage of the same loohole is logical. TIGHTEN UP THE TAX SYSTEM and stop evasion of tax and fraudsters and it will be fairer all round.

 

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