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.
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.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article