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SNP closes public-sector tax loophole

SCOTTISH ministers have blocked public-sector employees from legally avoiding paying tax on their salaries, the Sunday Herald can reveal.

Finance Secretary John Swinney has issued new guidance on the use of 'off-payroll' schemes
Finance Secretary John Swinney has issued new guidance on the use of 'off-payroll' schemes

SNP government guidance has called time on quango staff and board members reducing their tax bill by getting paid through a company after a review uncovered examples of the practice. Non-payroll arrangements can now only be entered into in the "most exceptional of circumstances".

Earlier this year it emerged that Ed Lester, head of the Student Loans Company, had been receiving his £182,000 pay package through an external firm. This "off-payroll" scheme was criticised as it can allow individuals to pay the corporation tax rate of around 20%, rather than a higher level of income tax.

A Treasury review of the practice found that more than 2400 appointees had been getting paid this way, a scandal that embarrassed the Westminster government given its tough talk on tax avoidance.

In parallel, the Scottish Government launched its own review into how employees across the devolved public sector were being paid.

It focused on 143 organisations and looked at the payments for all employees and public appointees.

Although only 20 "ongoing" examples were found in Scotland, the review did not cover contractors employed by the public sector.

The 20 individuals work in bodies including Marine Scotland, the Scottish Advisory Committee for Distinction Awards, Transport Scotland and SportScotland.

Fresh guidance has now been issued by Finance Secretary John Swinney. The Government's finance directorate will have to be consulted on any deals that could be perceived "as seeking to minimise the tax liability of either the individual or the paying organisation concerned".

The rules say of off-payroll schemes: "There is a presumption against such arrangements which could only be justified - with the agreement of the Scottish ministers."

It applies to chairmen, board members, staff and consultants.

In a letter to Danny Alexander, Chief Secretary to the Treasury, Swinney said: "I have already instructed my officials to work with these [20] individuals and the public bodies concerned to ensure that all remuneration payments to individuals are channelled through payroll in future."

The guidance builds on existing rules for procurement, in which bodies can stipulate that a successful contract bidder cannot use offshore tax havens.

Scottish Liberal Democrats leader Willie Rennie MSP said: "Only after pressure from Danny Alexander and others has the SNP admitted they have a problem. They have been dragging their feet - [they] need to be open about the extent of tax dodging in their government."

When contacted by the Sunday Herald, most public bodies north of the Border denied paying employees or directors via private firms.

However, Skills Development Scotland said board member Alan McGregor was paid through a consultancy firm up until May last year.

And John Bruce, a member of Scottish Natural Heritage's deer panel, received his remuneration last year through Bruce Countryside Developments.

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