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 295.

    You seem jealous that the rich are able to employ the means to avoid what they correctly view as an immoral theft of their earnings. You have the same ability. You can demand from your thief, your MP, that he abolish the income tax, shrink Government to its proper size & function, do away with the expensive Nanny State, & you too will be free from theft, ahem Tax.

  • rate this

    Comment number 294.

    The problem is NOT that so many short term contracted self employed people are paid 'off payroll'. The problem is with the government for not working out how to FAIRLY tax these people thereby leaving far too many legal loopholes.
    The country is skint and we need to collect as much tax as possible to repay our enormous debts, pay for essential services and keep the tax of the PAYE Brigade down.

  • rate this

    Comment number 293.

    Contractors pay Corporation tax on profits and also pay income tax on salary they pay themselves. Where is the avoidance? Switching contractors to employees could end up increasing the cost to the taxpayer as holiday pay, sick pay and pension contributions are taken into account. Contractors don't get paid when on holiday or sick and have to fund their own pension.
    This one could really backfire.

  • rate this

    Comment number 292.

    I am a freelance IT contractor. I provide my services through a company. My current contract is likely to last for about 18 months, but when it started it was only expected to be 6 at most. As others have said as a freelance I don't get many of the benefits people on normal employment enjoy, no unemployment benefit between contracts, no holiday pay, no sick pay.

  • rate this

    Comment number 291.

    The use of a company is not the issue here, it is whether the distinction between employment and self-employment is correctly drawn. The rules are complex but if a person is genuinely principal rather than agent then there is nothing wrong with using a company.

    Of course, HMRC has been shown to favour major companies before (Vodafone, Goldman, etc), so who knows?

  • rate this

    Comment number 290.

    @285 - Bastiat, that is not a standard socialist argument, it's an argument used in every democratic country in the world. Income tax is used to ensure that society works, even the most rabidly right wing Tea Party republican in the US would argue that some level of income tax is required

  • rate this

    Comment number 289.

    I would have expected MPs to be pleased - this is a prime example of the public sector applying lessons learned from the private sector. It's what they keep telling us to do. Oh, except when it doesn't suit them of course.

  • rate this

    Comment number 288.

    Plebs making their own tax arrangements!!

    Whatever next?

  • rate this

    Comment number 287.

    It is also wrong the wealthy are not paying thier fair share of tax either, public sector or not - BILLIONS of it denied in tax avoidence schemes and off-shore accounts.


  • rate this

    Comment number 286.

    Forgot to add, the BBC has not broken any rules, they have not done anything wrong. Sound familiar? Unlike politicians the BBC have only applied the same principles as are widespread in the real world, unlike politicians who just fiddle expenses as they please.

  • rate this

    Comment number 285.

    In rebuttal to your standard socialist argument:

    For every job “created” by government spending, another job has been destroyed to pay for it.

    I suppose you're going to say, but if the Govt doesn't maintain slavery there'll be a cotton shortage. If govt doesn't make phones, no one will have one. If govt doesn't grow wheat we'll all starve. Get real Comrade.

  • rate this

    Comment number 284.

    275 Bastiat

    'How's tax different to theft?'

    If you need to ask this question I think you might struggle with the answer, however simple.

  • rate this

    Comment number 283.

    The lack of taxation for major corporations is of much greater concern to me. What is the Tory government and HMRC doing about this? Nothing? What a surprise.

  • rate this

    Comment number 282.

    Every day we hear that the public sector lets people go in order to reduce head count and save money. The workload doesn’t go away so what do they do? higher a load of temporary staff to fill the vacancies. It’s cheaper to engage contract staff as authorities don’t have to pay pensions, sick leave holidays and only engage staff when needed. The gov wants to eat their cake and have it!

  • rate this

    Comment number 281.

    This is not news.
    Any number of interim or not so interim staff in the private sector, incl. footballers, on 6 figure sums pay PAYE at basic rate and then pay themselves dividends on the rest, after deducting inflated business expenses and pension contributions.
    The dividends attract a lot less tax than PAYE would.

    Will anything change?

    Of course not, because all of our MP's are at it too.

  • rate this

    Comment number 280.

    Public Accounts Committee chairman Margaret Hodge: "It's wrong that individuals working in the public service aren't paying their fair share of tax"

    And what about the wealthy of this country with their similar tax avoidence schemes that are STILL going on????

    I am fuming at this. It is time the UK public marched to No.10 Downing Street and demanded the Government resign.

  • rate this

    Comment number 279.

    @275 Bastiat, I assume you are not on any benefits, never use the NHS, don't want any state pension when you retire, don't use roads or any other type of infrastructure, don't need sewage or water services to your house etc etc etc.

  • rate this

    Comment number 278.

    Methinks the lady doth protest too much! A poor attempt at deflection for politicians being uncovered in the expenses row. Shame on the politicians who should clean up their own act before pointing fingers

  • rate this

    Comment number 277.


    ...the effect is that much MORE ACTUAL TAX will be paid - VAT (20%), Corporation tax, plus dividend tax, plus PAYE NI / income tax. ---------------
    Incorrect. No net VAT is paid. If all the money is paid as salary, then there's no corporation tax (no profit). If it's paid as dividends, then there's no employer's NI.

  • rate this

    Comment number 276.

    I don't pretend to fully understand this, but I do know that the Housing Association I work for has just formed private companies and transferred much of their existing staff to these limited companies.


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