The widespread nature of “off payroll” payments being made to thousands of public servants has been branded “shocking” by a committee of MPs concerned over potential tax avoidance activities.
A Public Accounts Committee report singled out the BBC for paying 25,000 employees – 13,000 of whom were broadcasters – a gross amount into a company account rather than give them their wages via payroll, in a move that could enable them to pay less tax and national insurance than they should.
The Committee’s inquiry into such arrangements began after it emerged earlier this year that Ed Lester, the former head of the Student Loans Company, was being paid as a contractor via a personal service company with agreement from the tax authorities.
The situation could potentially have saved him tens of thousands of pounds in tax and, therefore, triggered an inquiry by the Treasury.
After establishing that 2,400 civil servants, each earning more than £58,000 per year, were likewise being paid off payroll, the review was widened in May to include the BBC, Local Government Association and HM Revenue & Customs.
Committee chairwoman Margaret Hodge said: “It was…shocking to find out that for 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.”
She branded such behaviour “almost always staggeringly inappropriate” and urged public servants to “show leadership in the fight against tax avoidance” by ending off the use of off payroll contracts.
But John Whiting, director of tax policy at the Chartered Institute of Taxation, told BBC Radio 4’s Today Programme that some workers made their own tax arrangements for perfectly legitimate reasons.
“If you are just an ordinary freelancer, which is very prevalent these days – anyone from a plumber to a journalist – working here and there, working through a company, then it is a perfectly sensible way of organising your affairs,” he said.
This report was targeting people who were in what was often termed ‘disguised employment’, however. This meant that they were really staff members, but “are putting the aura around them of ‘No, I’m operating for a company”, Whiting explained.
