Senior civil servants earning more than £58,200 are alleged to have been paid ‘off payroll’ and instead putting their pay through private companies to cut their tax bills by paying a corporation tax rate of 21%.
Ministers have alerted attention to the rise of senior officials adopting schemes under the last government and sources have identified that members of local government, NHS and the BBC are thought to be reducing their tax bills through similar tax avoidance schemes.
Earlier this year an investigation was ordered after head of the Student Loans Company, Ed Lester, was accused of avoiding tens of thousands of pounds in tax through a similar tax avoidance arrangement of being paid through a private company.
Mr. Lester allegedly reduced his tax bill by nearly £40,000 per year; on yearly earnings of £182,000.
Following the Student Loans Company revelation, on 8 February 2012 Prime Minister, David Cameron, wrote to MP Richard Bacon confirming that he was ‘taking this matter very seriously’ and that a review of public sector appointees receiving payment through private companies had urgently begun.
2,000 officials have now been identified to be using similar tax avoidance arrangements.
In a leaked confidential letter, Danny Alexander, Treasury Chief Secretary, states that tax avoidance by Whitehall bureaucrats is on a larger scale than thought; as he writes plans for a crackdown on tax avoidance.
The leaked letter was acquired by ExaroNews, an investigative website, who published the six page letter on 2 May, sent from Mr. Alexander to Chancellor George Osborne dated 25 April.
In the letter, the Treasury Chief Secretary writes:
“The sheer scale of off-payroll engagements across Government, and the length and size of these contracts, suggests that the scope for artificial tax minimisation may be greater than previously understood.”
Mr. Alexander said that the government would force civil servants earning more than £220 per day, in employment for more than six months, but not on an official payroll, to come forward and prove that they are paying the right amount of tax; for those who cannot, contracts will be terminated.
Targeted departments will be given three months to comply. After this time a fine of five times the official’s salary will be issued.
A source from The Treasury, said:
“We inherited this practice from labour. We are wasting no time in finding out the scale of this problem.”
“We do not comment on leaked letters,” a spokesman added.
Treasury Chief Secretary, Danny Alexander, is said to also be asking Education Secretary, Michael Gove, and Health Secretary, Andrew Lansley, for the same rules to be applied to schools and the NHS.
Kevin Kinsella Jnr, of KinsellaTax, said:
“Nobody is doing anything wrong. These are schemes that have been operating for years and people, given the right circumstances, are able to take advantage of them. Anyone in this country can by any legal means reduce their tax liabilities. But it has become a mortal sin to do so, they have become the whipping stock of the general mass outcry – it’s ludicrous really. There are people who actually do need investigating. Why on earth we should waste time, energy and resources going into tax avoidance schemes that are actually legal is, to my mind, ridiculous.
“HMRC are hard pushed to deal with matters as they are, they haven’t got sufficient staff to deal with all the enquiries so they don’t need this extra burden to chase people who are actually doing nothing wrong. I find the whole razzamatazz something out of Barnum and Bailey’s circus. Let’s find the people who do need investigating and investigate them – not honest people who are taking advantage of schemes that have been there for absolutely years.
“And in the letter from David Cameron to Richard Bacon frankly it says nothing. No comment on Danny Alexander’s letter to George Osborne, neither of whom I believe are doing much good for the country at the moment quite frankly.”
KinsellaTax staff consists of ex-HM Inspector of Taxes and ex-HM Custom and Excise Officers fully trained in all types of HMRC investigations.
If you would like to discuss a tax avoidance enquiry in confidence call 0800 471 4546, or send us your enquiry online.