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 335.

    Nothing compared to the 'concerns' I have about "our MPs".

  • rate this

    Comment number 334.

    Failed to address any points raised at 285, 295 or 302, & then asks me to leave the country. I wonder who's losing the argument if they have to play the man. Thank you, you revealed your character. What will you say when the Nanny State is broke, the BoE is bust & you can't have your comforts at someone else's expense? Read H Hazlitt.

  • rate this

    Comment number 333.

    In reply to all the detractors in regards to contractor pay and "off payroll"

    You are probably employed, your job is secure (as any can be) you get holiday pay, sick pay, maternity leave, a pension not to mention you cannot be sacked at less than 1hrs Notice.

    Contractors have NONE of the above, we take the risk, we have expenses and we have no security.

    Make it a level field I would LOVE IT!

  • rate this

    Comment number 332.

    @JPublic, the BBC can't name and shame those not paying the same %income tax. The BBC and civil service don't know how much income tax those people are paying as the are not employees on PAYE

  • rate this

    Comment number 331.

    I have worked as a contractor and as a regular employee.

    As an employee I paid PAYE/NI, got paid holidays and was part of a pension scheme, and if I was ill I got sick pay.

    As a contractor, I paid less tax but had no paid holidays, had to sort out my own pension & if I was ill no money came in.

    Why should there not be the freedom to choose which package you prefer?

  • rate this

    Comment number 330.

    The problem is that more more people will be employed as contractors, it's in the employers favour. They don't have to pay sick pay, holiday pay, a pension or employers NI. They can have a smaller HR and save costs that way.

  • rate this

    Comment number 329.

    320.Tio Terry
    Oh my god... tell you how to get past it.
    1. Register at your parents - they charge you a notational rent.
    2. Minimum wage - no tax.
    3. Claim your normal commute, food and rent as expenses - tax free.
    4. £400 a month for an accountant.
    5. Pay into a SIPP for yourself.
    6. Rest dividend.
    7. If contracting is as harsh as you make it, people won't be doing it anymore.

  • rate this

    Comment number 328.

    @ 322.drew
    " When these sanctimonious celebrities avoid paying tax and sit in judgment of those they claim are doing wrong it's IMMORAL! The BBC should name and shame them."

    They should name and shame everyone not paying the same % income tax as most of us are forced to who earn above £25k p.a.

  • rate this

    Comment number 327.

    If Margret Hodge is so worried about tax fiddling maybe she should audit the wages paid to construction workers who worked on the Olympics!
    The entire construction industry is riddled with tax scams and most of them are due to the huge influx of dodgy employment agencies!

  • rate this

    Comment number 326.

    Last year the news was about cutting the civil service wage bill. Earlier this week the news was about civil servants not having the commercial skills to manage major contracts after the rail franchise fiasco wasting £millions.. Today it is about the civil service buying-in too much specialist support. Is it too much to ask for the government to apply some common sense?

  • rate this

    Comment number 325.

    Yes, I do disagree with your assumption. If a minimum wage law is set Above what the free market would have set it at, then that industry will charge higher prices for its product, or go bust, so the burden of paying the higher wage is merely shifted to consumers who in turn all lose by having to pay higher prices than they otherwise would.

  • rate this

    Comment number 324.

    We have legalised tax avoidance and the focus of the Government is the poor sick & disabled struggling on benefits, another case of the rich looking after the rich.

  • rate this

    Comment number 323.


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

    Get over yourself. It is not "envy and spite", its anger that the ruling wealthy elite write tax-avoiding laws to suit themselves while forcing the rest of us to pay a higher % in tax than they do. Call it self-promoting greed by the ruling wealthy elite.

  • rate this

    Comment number 322.

    When the rich avoid paying tax that means the poor have to pay more. When these sanctimonious celebrities avoid paying tax and sit in judgment of those they claim are doing wrong it's IMMORAL! The BBC should name and shame them.

  • rate this

    Comment number 321.

    Re 304 etc: You should note that working 'freelance' is very different to working 'ltd company'. 'Freelance' is rarely allowed by the Inland Revenue outside of building and allied trades. The Revenue actually started the rush to 'ltd co' in the mid-80's, when they clamped done on 'freelancers' in the automotive engineering industry.

  • rate this

    Comment number 320.

    297. Cheddy
    No. IR35 put a stop to that. Under IR35 you have to be able to prove that you pay yourself a "living wage" from the company. That means enough to pay mortgage/Council Tax/energy/water/food/clothing etc. On top of that you pay both Employers and Employees NI, Corporation Tax and an Accountant. If there's anything left you can pay a pension then you can pay a dividend.

  • rate this

    Comment number 319.

    313. Bastiat - The UK is strangled by huge sanctions imposed on itself!
    Nope, not quite. The 'huge sanctions' were imposed by the government
    - PAYE was introduced for simplicity (at least for the Government)
    - Trust Funds were to protect the rich from losing their estates
    - various self-employment 'caveats' were designed to help tradesmen, but have now been hijacked by the rich

  • rate this

    Comment number 318.

    "Paying your tax is ... your moral duty wherever in the world you live"
    I guess that would make Karl Marx & Vladimir Lenin, very moral people then?

    & Every American President from George Washington to James Buchanan terribly immoral because they thought the idea of an income tax to be repugnant to a Free Society?

  • rate this

    Comment number 317.

    @313 Bastiat, the UK is the 7th largest econonmy in the world, it has one of the lowest overall rates of taxation in western europe. If you don't want to be here I'd suggest you try rural China as China obviously has such high living standards

  • rate this

    Comment number 316.

    You wouldn't believe it given some of the guff written but contractors working through a ltd company are subject to exactly the same tax laws as everyone else when paying themselves from the company. They also typically work short term contracts often involving a lot of travel / working from home. They also do not get sick or holiday pay.


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