The Department of Health has apologised for misleading the opposition about paying senior figures via limited companies to help them avoid income tax.
According to one insider, the 25 cases identified by The Guardian could be “the tip of the iceberg”.
The comment mirrors that of AccountingWEB member, The Black Knight, who commented on the scandal that broke around Student Loans Corporation head, Ed Lester, earlier this month that government departments were “some of the biggest drivers and users of personal service companies”.
The leaked internal documents reveal that senior staff employed by the department were paid salaries direct to limited companies, with the likely effect of reducing their tax bills.
The majority of these companies are registered as business and management consultancies but, in most cases, their names appear to be little more than an adaption of the individual’s surname, according to payroll information leaked to The Guardian.
One Whitehall source said: "We cannot defend these arrangements, but it may be it is very common in Whitehall and this is just the tip of an iceberg."
IR35 rules
In December, shadow Cabinet Office minister Gareth Thomas asked health minister Simon Burns if any of his health department staff were paid via limited companies. In a written parliamentary answer, the minister said no payments were being made to civil servants in this way, adding: "It is not the department’s policy to permit payments to civil servants by ways of limited companies."
In response to The Guardian’s findings, the department issued a statement on Wednesday 15 February clarifying its definition of “staff": “We can confirm that no civil servant who is an employee of the Department of Health is paid in this way. We are currently carrying out a full audit of such arrangements in line with the recently announced Treasury review of tax arrangements of public sector appointments."
It continued: "To this extent, it was certainly not our intention to mislead anyone involved. We would be happy to clarify the situation in greater detail with anyone who asks and apologise for any misunderstanding involved."
The issue of whether or not the staff in question should be caught by IR35 contractor rules will also likely come into play based on whether individuals declared that they were covered by the regulations as “disguised employees".
Commenting on the SLC tax scandal at the start of the month, Nicola Ross Martin revealed that the arrangement was covered by extra statutory concession A37 and that HMRC appeared to have given Ed Lester the benefit of A37 twice.
Earlier this month Danny Alexander, the chief secretary to the Treasury, set up a Whitehall review into the extent of the pay arrangements after it was revealed that the Department for Business, Innovation and Skills had sanctioned a similar salary deal for SLC chief executive, Ed Lester.
The DoH arrangements will be subject to a Treasury investigation, in which HMRC confirmed it will be taking a direct hand. HRMC said: “We are co-operating with the government wide review and will report the findings to HM Treasury by the end of March.”
