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Government tightens rules on off payroll appointments in the public sector

News Release issued by the COI News Distribution Service on 23 May 2012

• Chief Secretary’s review finds over 2,400 people paid off payroll
• Consultation on new tax rules for personal service companies and other intermediaries is launched

New tighter rules governing ‘off payroll’ appointments in central government will be brought in this year, the Chief Secretary to the Treasury has announced today. The action comes after a review of Government departments and their arm’s length bodies published today revealed that over 2,400 key public sector appointees have been engaged off payroll, in some cases for more than ten years.

The review was commissioned by Chief Secretary to the Treasury Danny Alexander earlier this year. Each of the departments and bodies involved has today published on their websites a list of off payroll appointees who were engaged at an annual cost to the department of more than £58,200 – the minimum salary for Senior Civil Servants.

Of over 2,400 engagements identified by the review, 40 per cent of appointees have been engaged off payroll for more than 2 years. Other key findings include:

• departments pay intermediaries, such as employment agencies, in around 85 per cent of cases, personal service companies in around 10 per cent and the self-employed in less than 5 per cent;

• over 40 per cent of those identified are IT contractors;

• the majority of those identified are paid on a daily basis, with around 70 per cent costing the appointing department more than £400 per day; and

• around 3 per cent of those identified have been engaged off payroll for more than ten years.

The review recognises that there are circumstances where it may be appropriate for an employer to appoint an individual off payroll and that the fact that an individual is engaged in this way does not mean that they are not paying the correct amount of tax.

However, it is essential that Government employers are able to assure themselves that their long-term senior staff are meeting their tax obligations, so the Government is proposing to tighten the rules associated with employing people off payroll:

• the most senior staff must be on the payroll, unless there are exceptional temporary circumstances.

• departments will be able to seek formal assurance from contractors with off payroll arrangements lasting more than six months and costing over £220 per day that income tax and national insurance obligations are being met. Departments should consider terminating the contract if that assurance is not provided.

• this will be monitored carefully with financial sanctions for departments that do not comply.

These recommendations will be implemented within three months.

Danny Alexander said:
"The review has identified almost 2,500 off payroll engagements in central government departments and their arm’s length bodies. The opaque nature of those engagements has created the conditions where tax avoidance could be taking place.

“We have to bring an end to the ‘don’t ask, don’t tell’ approach to this issue. That’s why I am announcing these new, tighter rules on off payroll appointments in Government and passing the detailed findings of the review to HMRC.”

The Government is also today publishing a consultation on the Budget proposal that all ‘controlling persons’ must by law be on the payroll of the engaging organisation. The Government believes that where an individual is in a position to control the major activities of an organisation, but is engaged through an intermediary, rather than on the payroll, the engaging organisation must be able to be confident that the individual is meeting their tax obligations.

This change in law will further tighten the rules ensuring that people paid through personal service companies in both the private and public sector pay the right amount of tax.

Notes for Editors

1. A copy of the review can be found here - http://www.hm-treasury.gov.uk/tax_pay_appointees_review.htm

2. The review requested information from central government departments and their arm’s length bodies in relation to all individuals engaged off payroll as of 31 January 2012, where the cost to the department is in excess of £58,200 per annum (the Senior Civil Service minimum). It also covered all departmental board members, regardless of their cost. This information includes individuals paid directly, or through an intermediary – but excludes secondees, where individuals are on the payroll of the seconding organisation.

3. The review into the tax arrangements of civil servants was announced by Danny Alexander on 31 January 2012. His statement to the House of Commons can be found here – http://www.publications.parliament.uk/pa/cm201212/cmhansrd/cm120202/debtext/120202-0001.htm#12020240000004

4. The consultation on the taxation of controlling persons closes on 16 August 2012 and can be found on the HMRC website.

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