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 255.

    The only thing MP's are shocked about is that the plebs are starting to use the same loopholes as big business uses. Before anyone syas do you have an ISA, yes I do. Have I set myself up as a limited company to bypass higher tax rates? No, I can't afford it. Therefore it's not open to all as an ISA is.

    So, if you're wealthy enough you can pay a lot less tax than 'decent hard working taxpayers'.

  • rate this

    Comment number 254.

    @19 -what should be made illegal? So, if you want to ise a plumber, you think that you should employ him on your payroll?

  • rate this

    Comment number 253.

    Being freelance is O/K and getting tax breaks is fine, but one has to ask the question, how long are these short term contracts, if they last more than 12 months then they should be taxed at source just like any other worker. Lets get away from the idea that these people are special, when it comes to and taxes, We would all like to pay less, but sadly for some of us we can't.

  • rate this

    Comment number 252.

    What I see here is a politically-motivated attack on freelancing. Gordon Brown spent years muddying the distinction between tax evasion (a crime) and tax planning (which, although legal, he chose to call 'tax avoidance'). Now this Tory-dominated government is happy to follow his lead.

  • rate this

    Comment number 251.

    As a contractor I resent being labelled a 'tax avoider'. I pay tax and NI at the appropriate rate (set by Treasury). It’s less than PAYE, but a competitive corporate tax rate is a government priority. You can’t have it both ways. And companies don’t have to pay the perks associated with perm staff; holiday pay, sick pay, bonuses or pension. Contractors benefit companies by plugging gaps.

  • Comment number 250.

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

  • rate this

    Comment number 249.

    Oh but we're all in this together aren't we? Yeah, right...

  • rate this

    Comment number 248.

    This is far worse than Private Sector workers paying tax outside of PAYE. At least they are contributing something to the Revenue. Public Sector workers are simply returning some of their wage to the Treasury and don't contribute anything directly to the overall tax take. Anyone employed by the Public Sector with these tax arrangements is simply a thief.

  • Comment number 247.

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

  • rate this

    Comment number 246.

    Presumably at least some of these "shocked" MPs are the same ones that said they were merely acting within regulations when the expenses furore erupted? Regulations they'd agreed between themselves, if I remember correctly?

  • rate this

    Comment number 245.

    I was told I was eligible for a tax rebate some months ago. Well I'm still waiting. I was paying far too much tax for the amount I was earning - almost half my salary at one point. I managed to get my tax code changed which has helped, however I desperately need this money so why haven't HMRC reimbursed it - after all it's my money.

  • rate this

    Comment number 244.

    so i assume that the bbc won't owe them a pension ?

  • rate this

    Comment number 243.

    I don't think MP's are in a position to claim the moral high ground on fiddling taxes and expenses.

  • rate this

    Comment number 242.

    Somone I used to work with was made redundant and came back 3 months later as a contractor, getting paid 10 times as much; as others pointed out, these guys pay corporate tax but it's only a 1-man company.
    That's just blatent cheating. Also, their money doesn't go to British Economy, they mostly holiday abroad (Vegas is a common destination.).

  • rate this

    Comment number 241.

    I suspect the MP's are judging the use of incorporation for tax avoidance by their own practices rather than self employed media practices which the revenue monitor very strictly. How many MP's have incorporated income with their spouse as secretary or their constituency home registered as a place of business?

  • rate this

    Comment number 240.

    Bunch of self-righteous, over-paid, Guardian-reading hypocrites!
    Let's switch to the other channels.
    Alternatively repay your tax.

  • rate this

    Comment number 239.

    I simply dont believe our country has any moral values left.

    Wealth greed and the cult of selfishness is all that at least half of the country aspire to.

    God have mercy upon you....because you who create tax havens/speculate while the people suffer...will need it. Be assured.

  • rate this

    Comment number 238.

    It shocks MP's (who aren't exactly above the odd bit of sharp practice nthemselves?) that a few other people take advantage of legal loopholes presented to them to use by said MP's???

    There is an irony here somewhere.

  • rate this

    Comment number 237.

    They're shocked! So while they've had people shouting at them for years about what was going on, and really lots and lots of them, they didn't beleive them. And this doesn't even touch the really huge sums being cheated in the private sector. And I have to say here, as someone on benefit for years, when you see and are aware of this, it really doesn't give you the motivation to try or even continu

  • rate this

    Comment number 236.

    @229 it is not a "major area of tax evasion" it's tax aviodance - there is a big difference evasion is illegal, aviodance is legal.


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