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 315.

    313 Bastiat

    Presumably your view that the Chinese government keeps its nose out ignores the fact that they ordered a 21% increase in minimum wage rate because huge numbers of low paid were becoming unable to pay for basic food and shelter. That was in 2010, now they're discussing it again. Good example you chose.

  • rate this

    Comment number 314.

    The current tax rules means that most of us low to middle earners have no choice but to pay the taxes demanded by our Governments. But they personnally have a different set of tax rules written by them that enable them to avoid tax and as we have seen recently, some are paying less tax than the people cleaning their offices. THIS IS REPUGNANT.

  • rate this

    Comment number 313.

    Avoiding @285, again
    The UK is strangled by huge sanctions imposed on itself! Payroll taxes, company taxes, income taxes, tariffs, voluminous regulations, VAT, subsidies, stamp duties, capital gains taxes etc

    We're doing to our own economy what we do to North Korea's economy, strangling it

    China has been increasing its economic freedoms = the rise in living standards

  • rate this

    Comment number 312.

    The 'Ltd Company' scam has gone on for years. In many areas, engineering, IT, etc, it's normal practice. Your GP and solicitor work a very similar thing. It avoids employers paying National Insurance, sick pay, and holidays. It allows the employee to reduce tax, NI, and claim tax breaks on 'expenses'. Everybody knows it's a scam, but it's legal.

  • rate this

    Comment number 311.

    At least the public sector tax dodgers won't be getting a gold plated final salary pension scheme, or at least i assume not. Although I wouldn't put it past some highly paid accountant to work out a way to ensure that they were employees all alomg and therefore entitled...(for a fee)

  • rate this

    Comment number 310.

    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...

    Paying your tax is not theft, it is your moral duty wherever in the world you live. Not paying your tax is not only wrong it is immoral.

  • rate this

    Comment number 309.

    #305 "If they all paid the same % in income tax as most of us have to, there would be billions more tax collected"

    Really? Go on, shock us. What's your income and how much tax/NI do you pay?

    You clearly haven't a clue what you are talking about and just spout envy and spite.

  • rate this

    Comment number 308.

    I work as a tax consultant and can tell people that the real flood of "one-man-band" companies, particularly in the IT sector started about 15 years ago when one particularly large contractor said they would not engage anyone UNLESS through a service company because they wanted to avoid employment related costs.

    That contractor was the Government.

  • rate this

    Comment number 307.

    @Bastiat, you need to go away and do some basic reading - North Korea is subject to lots of sanctions and ruled by a corrupt elite it's not booming because of that. Do you think that China has no income tax?

  • rate this

    Comment number 306.

    Errr which political party is the one who says "private" business is good?

    Which political party is now whinging like the idiotic spoilt brats they are?

    Which political party hasn't enough gumption to work out the fallacies of their dogma?

    Ladies and gentlemen I give you the Conservative party.

    Totally out of touch and realism as usual.

  • rate this

    Comment number 305.

    "..25% of all income tax is paid by those who earn the highest 1% of incomes.If you earn £17k or less, then on average you take more from the Govt in benefits and services"

    Only 25% of income tax comes from the top 1% of earners??

    If they all paid the same % in income tax as most of us have to, there would be billions more tax collected.

  • rate this

    Comment number 304.

    Eddie, Why should someone be taxed at source if they are running a legitimate business? The idea that a contract has to be a set length of time is utterly ludicrous. It's the UK tax laws that need looking at not length of contracts. Being freelance doesn't mean you are paying less tax - you are just paying it a different way - but news items like this don't mention that!

  • rate this

    Comment number 303.

    Freelance contractors are a different matter, but if anyone is employed in either the private or public sector and are classed as permanent staff and are applicable for pensions etc then this "off payroll" option should not be available and they should pay the same tax as the rest of us. Perhaps this is a tax loophole that could be looked at closing.

  • rate this

    Comment number 302.

    Oh Comrade! Seems you forgot to answer any of my points @285 :P
    Applying your theory of income taxes ensures a society works, why then didn't the USSR "work" where they had the most income taxes?
    Why is not North Korea booming "working"?

    Even China, seeing Hong Kong's success, is allowing more economic freedoms = raising their standards of living. Is the UK's rising?

  • rate this

    Comment number 301.

    If the self-employed and those living on investment income weren't privileged in their tax affairs this wouldn't happen. Roll NI in to income tax. There's no reason employees should have to pay more than company owners.

  • rate this

    Comment number 300.

    Another public sector employee, David Laws MP, is guilty of stealing £50,000 of our money. Even his own father says he should be in prison for this crime.
    What happened to him?
    Cameron promoted him to Schools Minister and gave him a £70,000 pay rise.
    Is that not a lot more "shocking"?

  • rate this

    Comment number 299.

    Another day, another tax avoidance scheme.

    Basically everyone who is not PAYE and even some that are, seem to be trying to reduce their tax liability.

    Shock, horror people exclaim!

    Reality is that people don't want to put in what govts want to spend to buy voters who don't. The game is up for the non-contributers. Want further evidence, ask Hollande how is getting on in France!

  • rate this

    Comment number 298.

    "The Labour MP said avoiding tax and national insurance when paying public sector staff was "almost always staggeringly inappropriate".

    This is a joke. Labour had 13 years to sort out the tax system but under their Governance, they allowed tax avoidance by the rich & wealthy /themselves to run rampant. How much tax has Tony Blair and his little empire avoided under tax rules his Gov't created??

  • rate this

    Comment number 297.

    "Contractors pay Corporation tax on profits and also pay income tax on salary they pay themselves."
    No they don't - they get paid minimum wage (tax free) and dividends which they give to themselves (lowered tax rate).

  • rate this

    Comment number 296.

    "JPublic - the wealthy are not paying thier fair share of tax"

    In the UK, 25% of all income tax is paid by those who earn the highest 1% of incomes. If you earn £17k or less, then on average you take more from the Government in benefits and services than you pay in tax You are taking more than you give

    there are 5 million adults not working just take benefits

    Who is paying their share?


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