Crackdown on off-payroll payments in public sector

UK Political Editor

Thursday 24 May 2012

THE UK Exchequer could have lost millions of pounds in unpaid tax because more than 2400 public officials are being paid off the Government payroll, it emerged yesterday.

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MICHAEL SETTLE UK POLITICAL EDITOR

A Treasury probe revealed that 40% of cases went back two years or more, and some as far as 10 years. In 70% of cases, people had been earning more than £400 per day.

Announcing a crackdown on the off-payroll culture, Danny Alexander, Chief Secretary to the Treasury, said: "We all have to pay our fair share to help pay off the deficit. It's clear that off-payroll engagement without sufficient transparency has been endemic in the public sector for too many years."

In a Commons statement, Mr Alexander said the problem had built up under the previous Labour administration and it was likely that under the Blair and Brown governments "many more thousands of cases of off-payroll payment may have come and gone, yet no-one said a word".The controversy over the way public servants are paid began in February when it was disclosed that Ed Lester, head of the Glasgow-based Student Loans Company, was paid via a company without tax being deducted, saving him tens of thousands of pounds.The Treasury review looked at all UK Government departments, their arms-length bodies and the boards of NHS trusts, but not at the Scottish Government, local authorities and the BBC.Mr Alexander made clear it had not sought to identify tax avoidance but only off-payroll contracts. However, he noted how these were "opaque" and that tax avoidance could have taken place.Most cases involved technical specialists; 40% were made up of IT staff. In 10% of cases, money was paid directly to a personal service company, 85% went via an intermediary such as an employment agency, while the remaining 5% were self-employed. In 70 cases, departments were paying more than £1000 per day."Even when off-payroll employees are in fact paying the correct amount of income tax and national insurance, the employer has no means to reassure themselves that is the case," explained the Chief Secretary.Under new rules to be implemented by September, the most senior staff must be on-payroll unless there are exceptional temporary circumstances, departments must seek formal assurance from contractors they are paying full income tax and national insurance, and if assurances cannot be given, contracts will be terminated.Ministers are to consult on a new law to require people controlling an organisation to be on its payroll.Mr Alexander added: "The changes I have outlined today help ensure senior public sector staff pay and are seen to pay their full and fair share of tax."For Labour, Rachel Reeves welcomed the crackdown but said: "People will rightly be shocked that over 2000 senior public servants, many earning several times the average public sector wage, have been paid in a way that allows them to avoid paying their fair share of tax."l Job cuts to revenue staff resulted in £1.1 billion in unpaid tax not being collected, MPs said yesterday.The Commons Public Accounts Committee praised an HMRC crackdown that brought in an extra £4.32bn in five years – 11 times what it cost. However, it said the decision to axe 3300 posts at the same time appeared to have undermined its effectiveness.

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Crackdown on off-payroll payments in public sector

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