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UK – Public sector criticised for “off-payroll” tax arrangements

05 October 2012

MPs have today criticised tax schemes used by some employers in the public sector, including the BBC which was earlier this year attacked over its use of personal service contracts to potentially circumvent tax payments.

The Commons Committee of Public Accounts said that too many public sector employers use such off-payroll arrangements in the public sector which could lead to lower tax and national insurance contributions on their part.

The committee said that the public sector must maintain the highest standards in employment practices in the fight against tax avoidance and should  avoid the practice of using off-payroll arrangements altogether as this generates suspicions of tax avoidance.

The committee launched an inquiry earlier this year into these off-payroll contracts after it emerged that the former head of the Student Loans Company was being paid through a company.

An investigation in May then unveiled that 2,400 civil servants benefited from off-payroll arrangements. But the BBC has now also come under fire.

“We were shocked, for example, to discover that the BBC has about 25,000 off-payroll contracts. 13,000 of these are for individuals who are on our screens and on the radio every day. They are the public face of the BBC,” the committee said.

The BBC is currently reviewing these arrangements, many of which it said are short-term contracts. 

Under such tax arrangements, employers use personal service companies to pay workers off payroll. The committee warned that it did not know “how endemic the use of personal service companies is in other parts of the public sector.”

“Ultimately, whether those paid off-payroll are paying the right amount of tax is dependent on HM Revenue & Customs properly enforcing tax rules to ensure employees, regardless of whether or not there is a personal service company, pay tax as employees.

“However, HM Revenue & Customs has progressively reduced its enforcement of the legislation designed to eliminate the avoidance of tax and National Insurance Contributions through the use of intermediaries, such as personal service companies, putting at risk any deterrent effect the rules might have on tax avoidance. In 2010-11, only 23 investigations took place; down from over 1,000 in 2003-04.”

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