2 Addressing the use of off-payroll
arrangements
8. HM Treasury told us that, following its Review
"the days of tax planning in the public sector are over."[12]
However, while the Treasury Review's recommendations go some way
to reducing the prevalence of off-payroll arrangements in the
public sector, they need to be strengthened in some areas. HM
Treasury told us that it will review the data on the use of off-payroll
arrangements in the public sector in a year's time, and that if
there are still lots of outstanding cases, the Government will
need to introduce more stringent controls.[13]
9. The BBC told us that it had reviewed its 3,000
engagements with individuals using personal service companies
as a result of the Treasury Review. The Treasury told us that
every foundation trust and commissioning body in the NHS will
also be covered by the rules set out in the Treasury Review.[14]
i. The Treasury Review recommends that:
"board members and senior officials with significant
financial responsibility should be on the organisation's payroll,
unless there are exceptional circumstancesin which case
the Accounting Officer should approve the arrangementsand
such exceptions should exist for no longer than six months"[15]
While we welcome this recommendation, the Review
does not specify what these 'exceptional circumstances' might
be. This leaves us concerned that there is still too much scope
for departments to interpret the rules differently, and could
leave open the risk of another case such as that of the Student
Loans Company's Chief Executive.[16]
ii. The Review also recommends that:
"engagements of more than six months in duration,
for more than a daily rate of £220, should include contractual
provisions that allow the department to seek assurance regarding
the income tax and NICs obligations of the engageeand to
terminate the contract if that assurance is not provided."[17]
10. However, the Review does not clearly set out
how departments should gain assurance that those using personal
service companies are paying the right amount of income tax and
national insurance on income they receive from the public purse.
Without clear guidance departments may choose not to seek that
assurance, or consider that it is someone else's responsibility.
For example, the BBC told us that it provides information on payments
to personal companies to HM Revenue & Customs, but that it
does not know whether the right tax has been paid, or whether
HM Revenue & Customs has questioned the tax arrangements,
because that is private information between the personal service
company and HM Revenue & Customs.[18]
11. Under 'IR35' legislation, HM Revenue & Customs
has the power to challenge whether those using personal service
companies are paying the correct tax and National Insurance Contributions.
HM Revenue & Customs told us that there is a deterrent effect
from the very existence of the IR35 legislation. In recent years,
however, the number of IR35 investigations that HM Revenue &
Customs carries out has decreased significantly from over 1,000
in 2003-04 to only 23 in 2010-11. The lack of investigations by
HM Revenue & Customs undermines any deterrent effect of the
legislation.[19]
12. HM Revenue & Customs plans to increase the
number of IR35 investigations it carries out 10-fold in the next
year.[20] In addition,
HM Revenue & Customs is carrying out a risk-based review of
the tax arrangements of the 2,400 off-payroll engagements identified
in the Treasury Review, and told us that it will look at the BBC's
payments through personal service companies.[21]
13. The Cabinet Office told us that part of the reason
for 2,400 individuals earning over £58,200 being paid off-payroll
is that the Civil Service has not developed sufficient skills
in house, producing an over-reliance on interim staff and consultants.
The Treasury, meanwhile told us that the challenge is to build
and retain in-house capacity, which requires far more careful
development and management focus on how you retain talented staff.[22]
The Treasury told us that it is in Whitehall's interest to have
people in senior posts who are there for a reasonable length of
time, not least so that this Committee can hold them to account.
However, Permanent Secretaries seem to move from department to
department too frequently, with 75% of those in post at the time
of the 2010 General Election no longer in post.[23]
14. While there is evidence of increased professionalism
in some areas, such as finance, programme management and IT skills
are still in particularly short supply in the Civil Service, as
shown by the scarcity of successful government projects that we
hear about.[24] We heard
that steps are being taken to improve project management skills,
including the establishment of a major projects academy by the
Major Projects Authority. In addition, the recently published
Civil Service Reform Plan touches on capability issues and we
were told that a five-year capability plan looking at skills deficits,
including those in project and programme management will be published
in the Autumn..[25]
12 Q 209 Back
13
Q 209 Back
14
Qq 96, 202-204 Back
15
HM Treasury, Review of the tax arrangements of public sector
appointees,http://www.hm-treasury.gov.uk/d/tax_pay_appointees_review_230512.pdf
Back
16
Qq 121-128, 205-209 Back
17
HM Treasury, Review of the tax arrangements of public sector
appointees,http://www.hm-treasury.gov.uk/d/tax_pay_appointees_review_230512.pdf
Back
18
Qq 27, 58-60, 95 Back
19
Qq 140-142 Back
20
Qq 140-143 Back
21
Qq 191-192 Back
22
Q175 Back
23
Qq 177-180 Back
24
Qq 173-175 Back
25
Qq 173, 194 Back
|