Off-payroll arrangements in the public sector - Public Accounts Committee Contents

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 circumstances—in which case the Accounting Officer should approve the arrangements—and 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 engagee—and 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,  Back

16   Qq 121-128, 205-209 Back

17   HM Treasury, Review of the tax arrangements of public sector appointees,


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

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© Parliamentary copyright 2012
Prepared 5 October 2012