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MPs have criticised an off-payroll payment system, used by thousands of public sector staff, for “failing to meet the standards expected of public officials”.The BBC was singled out as MPs said they were “shocked” to find that 25,000 of the broadcaster’s staff were paid using this method rather than through payroll. The report from the Public Accounts Committee examined the use of personal service companies to pay staff after concerns about potential tax avoidance by permanent staff being paid as contractors or freelancers were raised earlier this year.Under the arrangements, staff can be paid a gross amount into a company account rather than receive their wage via payroll.This system has raised questions about whether the correct amount of tax has been paid by employees.In May, a Treasury investigation into the use of this practice in central government found that more than 2,400 staff, each earning more than £58,200 a year, were being remunerated 'off-payroll'. The Treasury recommended changes to reduce the prevalence of this payment method. The PAC review widened the investigation to take evidence from public services including the BBC, Local Government Association and HM Revenue & Customs.In conclusion it said: “Too many public sector staff have been paid using off-payroll arrangements for too long. “The public sector must itself 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.”Margaret Hodge, PAC chair, said: "Those whose income is derived from monies raised through taxation have a particular obligation to make sure that they do not use tax avoidance schemes.“We were shocked, for example, to discover that the BBC has about 25,000 off-payroll contracts. Thirteen thousand of these are for individuals who are on our screens and on the radio every day. They are the public face of the BBC. It told us that it intends to review these arrangements.”She called on the broadcaster to explain how it will ensure that the staff involved are paying the correct amount of tax on their income.“Similarly 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.“We also want to know how the government will implement the Treasury's recommendations,” Hodge added.
But the Recruitment and Employment Confederation’s chief executive Kevin Green said: “The idea that using contract staff is a tax dodge is ridiculous, simplistic and wrong.
“This attitude toward the use of contractors in senior positions within an organisation is really disappointing and shows a worrying lack of understanding of business.
“These claims are not just damaging for recruiters and individual contractors, ultimately employers will lose out if they can no longer access the skills of specialist contractors and interims.
“The Treasury needs to issue clearer guidance on any assurances they require and enforce existing legislation so that employers using contractors can be confident that they are operating in a tax compliant way.
“The contribution of contractors and interim mangers is something that should be celebrated rather than damaged through knee jerk political reaction to headlines like those we have seen today.”
I am a professional interim manager and work mainly in the public and not for profit sectors. Each year, I pay corporation tax, NI and VAT via my business and personal income tax on my earning from that business. If I was a permanent member of staff I would be a higher level tax payer. Now - I may pay slightly less tax than if I was on payroll, but here are three important issues to recognise:<br/>1. I am working fully within current HMRC regulations and an not taking part in a 'scam' or in either tax evasion or tax avoidance.<br/>2. I have not (mainly due to Government cuts in budgets and funding) worked since May of this year. I am not entitled to any benefits and have had to continue to pay myself from my business. I run out of funds in a few week's time!<br/>3. When I am working, I am usually providing skills that the public sector needs but does not have.<br/>There is a massive difference between 'disguised employment' and the type of project based interim work that I do. It is dangerous and lazy to conflate the two.<br/>This is what it is like in the real world.
So MPs like to criticise the public sector. This practice is prevalent in public and private - and they both have the same effect on the public purse. <br/><br/>In fact the use in the public sector will often be better on the public purse, these workers will not cost the organisation they work for exorbitant on-costs for pensions. These people will still pay tax and NI on earnings and corporation tax on profit. <br/><br/>The fact is the private sector workers are going to be more likely to employ an accountant to reduce their tax burden than a worker in the public sector. I can't substantiate the last point, but based on experience and attitude of those I have worked with from both sectors, and the fact there are not as many tax deductable tools of the trade within the public sector bureaucracy.
In situations like this, whenever politicians start thumping the table in outrage, we should immediately be suspicious. They are part of the same organisation – central government and the wider ‘public sector’ – that, either through incompetence or knowing collusion, allowed a small number of people to work as ‘disguised employees’ but be paid as if they were genuine risk-baring freelancers/contractors with multiple income sources. They are also the same people who routinely 'employ' their spouses or other relatives as research assistants, for personal financial gain. <br/>And we might also wonder why Margaret Hodge and her fellow committee members are not expressing equal ‘shock’ and ‘outrage’ at their fellow public servant colleagues over at HMRC. Haven’t they shown gross incompetence and a laissez-faire attitude in not enforcing the existing IR35 tests put in place (by the government) to stamp out disguised employment?<br/>The sheer stink of hypocrisy is matched only by MPs’ ignorance on the difference between hiring employees (on the payroll) and contracting services from skilled sole-traders (off the payroll).
What is HMRC doing here, this is evasion not avoidance, and I still do not know the difference
Have your say... These days working as a freelance or self-employed is not unusual; it never was in the entertainment industry (I include the BBC here). And self employed people still pay tax and NIC. If working through a company they may well be liable for VAT and Corporation tax so this is hardly tax avoidance. <br/>Of course, if you are effectively on the staff in central or local government then you should be on PAYE.
Have your say...This is widespreasd and recognised custom and practice in the NHS, and the NHS condones it.
Not to take away from the fact that the BBC has rightly been called on this matter, but is it not misleading to say "25,000 BBC staff" when in fact the BBC have said it's 25,000 'contractual arrangements' with a significantly less individuals? i.e. a new contractual arrangement with each assignment.
And so the Public purse suffers yet again. How much is being lost each year in NIC? I suspect the BBC and other will be slimming down the accounts department and putting a few extra bodies in the Pyaroll section.