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 355.

    BBC is very sensible it saves the costs of public sector pensions, holidays sick and annual leave.

  • rate this

    Comment number 354.

    Please, when interviewing subjects about this topic, ask them to explain how this would impact gov. dept's such as HMRC and DWP. Their costs would sore, they would probably loose the flexible work force they currently enjoy, all the knowledge they have and have to replace them with less flexible,perm staff.
    The HMRC are currently planning to reduce staff by 4000 and replace with contractors!

  • rate this

    Comment number 353.

    You're not lucky. You sound like Obama. You worked hard, studied hard, learnt skills & made yourself a very productive member of the economy, justifying a higher wage. Increased production = increased wage.
    BTW I'd be able to donate to Cancer, Red Cross, Homeless charities etc, if I wasn't taxed to the hilt to pay for the charity of Westminster.

  • rate this

    Comment number 352.

    This country is riddled with "greedies" who's whole purpose in life is to generate personal wealth in whichever way suits them best. The enormous amounts of tax evaded and avoided by the "greedies" and their companies is a national disgrace.

  • rate this

    Comment number 351.

    If set up as a sole trader then there is reduced NI for the individual, recognising no sick pay etc. The loss to the treasury of employer NI will be more than made up by VAT charged and passed to the HMRC. As always, the over indulgence of a few ends up impacting far too many people through kneejerk reactions. The vast majority of freelancers will contribute tax/NI close to PAYE equivalent.

  • rate this

    Comment number 350.

    2 Minutes ago
    "This is a fallacy. There aren't masters like Marx would have you believe. Wealthy entrepreneurs want to invest & grow more profits."

    Yes, profits for themselves and that is why the rich/poor gap is wider than it has ever been and while the wealthy few have this money, the top 1% of them own and control something like 90% of the country's assets.

  • rate this

    Comment number 349.

    IMO that's just waffle: it is more tax efficient to be a sole trader than a Company - as you only pay tax once as opposed to paying tax on your company profits, tax on your income, and tax on any dividends. The main benefit a Company offers is limited liability: but try telling that to the Bank's who insist that Company loans are given with personal guarantees from the Directors!!

  • rate this

    Comment number 348.


    This is a fallacy. There aren't masters like Marx would have you believe. Wealthy entrepreneurs want to invest & grow more profits. Banks who hold wealthy people's savings accounts in turn lend this cash out to start up enterprises or expanding ones, who hire more people. If your wage is below market rates, unionise. If your wage is above market rates, be thankful.

  • rate this

    Comment number 347.

    Just go back a few years and the BBC would be highlighting social injustice, tax havens and the abuse of the Rich. Today they have switched to become just another of Cameron's propagand tools.

    Least we know why they fail to debate tax havens and the tax aviodance and the harmful effects on society it is having.

    Disgusting BBC you are just another rightwing media liar.

  • rate this

    Comment number 346.

    This matter was brought to our attention by Margaret Hodge and the Public Accounts Committe. Margaret Hodge is, in my opinion, a political superstar, and she and her committee do an excellent job. She has brought many cases of irregularity to public attention over the past two years and is probably a thorn in the side of the dodgy and greedy.

  • rate this

    Comment number 345.

    337.Tio Terry
    I didn't accuse you of anything did I?
    They won't catch them because:
    1. They cba with the small fish.
    2. It's impossible to prove that someone is not just working away, but living away.
    Better yet, the expenses clause allows contractors to claim travel. Some of them buy tickets to London, keep receipts, claim and cancel tickets. Too many ways to beat the rigid system.

  • rate this

    Comment number 344.

    2 Minutes ago

    "I see you won't actually say how much tax/NI YOU pay.

    But you seem to have a wealth of drivel you're happy to share with the nation"

    In % terms, it is about the 23 to 25% mark as most pay - much higher than quite a number of wealthy individuals who pay less tax than their office cleaner, okay, Mr Arrogant? Now, what about you?

  • rate this

    Comment number 343.

    @Bastiat, I don't know of anywhere Hazlitt advoacates no taxation, he was rightwing American economist who thought that capitalism was the answer, but he never suggested no taxation. BTW I'm in the very lucky position of having a good job where I don't have to live at someone else's expense, but do understand that in their are people who are not so lucky and am happy for my taxes to help them.

  • rate this

    Comment number 342.

    The point the freelancers are missing is that the lack of sick pay, lack of holiday pay, gilt edged pensions, nor the may other benefits of those permanently employed, will deter the chattering political classes from an all out assault on 'so called' Tax Avoidance or Tax Mitigation for those that don't live on 'easy street'!
    Why didn't Ms Hodge and her mates change the Tax rules whilst in office?

  • rate this

    Comment number 341.

    British democracy, our "State is a great fiction through which everyone endeavours to live at the expense of everyone else."

    We need to become personally responsible, & demand a Govt that will protect individuals from aggression, theft, breach of contract, & fraud. & provide only military, police, emergency hospital dpts, ambulances, courts, fire depts, prisons, the executive, & legislatures

  • rate this

    Comment number 340.

    If you are a freelancer (like myself), the only "benefit" from setting yourself up as a company is to pay less tax. I work as a sole trader so I pay the same tax as employees as I deem that my moral obligation as part of society. Yes I don't get as many state benefits as employees but then that is why I am paid more to compensate.

  • rate this

    Comment number 339.

    Employers can get rid of contractors at a moments notice with no fear of redunancy or any come back. Being employed is far better contractors would like to be employed but it is just not available, Contractors have to look for a job every six to twelve months. In fact business has all the benefits of employed staff without the costs or responsibilities. The only winner is the business capitalist.

  • rate this

    Comment number 338.

    @ 325.Bastiat
    " 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."

    Its a conumdrum. How do we, the low paid,who are so vital to industry, afford to house, cloth and feed ourselves when the minority few 'Masters' take the lion-share of a Company's profits for themselves??

  • rate this

    Comment number 337.

    329. Cheddy
    As soon as HMRI catch up with you both you and your parents are in for the high jump. I run a company, it's legal, I pay my taxes. I may be one of only two employees and I may well contract in others so that at any one time as many as 30 people work for me but they are responsible for their own tax/NI/holidays etc.

  • Comment number 336.

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


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