Looking at the use of personal service companies in the public sector, the committee was “shocked” after taking evidence from the BBC, the Local Government Association (LGA), the Treasury, the Cabinet Office, HM Revenue & Customs and the Department for Business, Innovation and Skills.
The use of off-payroll arrangements for staff who should be on the payroll – over 2,400 on more than £58,200 – makes people think that tax is being avoided. People whose income comes from the taxpayer have a particular obligation to make sure that they do not use tax avoidance schemes, the MPs said. The LGA said it didn’t think the practice was widespread in local authorities but admitted that it didn’t have accurate data.
The Treasury review – which followed the payment of the chief executive of the Student Loans Company through a personal service company – said that off-payroll arrangements can be used in “exceptional circumstances” but it didn’t clarify what these were.
Committee chair Margaret Hodge said: “Avoiding tax and national insurance when paying public sector staff is almost always staggeringly inappropriate. The public sector must maintain the highest standards of propriety in its employment practices if it is to show leadership in the fight against tax avoidance. It must avoid the practice of using off-payroll arrangements for staff who should be on the payroll – a practice which generates suspicions of complicity in tax avoidance and which fails to meet the standards expected of public officials.”
She went on: “It was shocking to find out that 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. We suspect that many individuals and employers in local government and in the health service do not pay their proper tax and national insurance contributions [and] we want to know how the government will implement the Treasury’s recommendations.”
