When it was revealed that Student Loans Chief Exec Ed Lester received his pay through a limited company, avoiding tens of thousands of pounds in unpaid tax in the process, there was much hand-wringing in the upper echelons of Government, and plenty of anger from the freelance and contractor communities, who are prevented from operating such arrangements by IR35.
Then a few weeks later when it came to light that 25 Department of Health officials had similar arrangements, there was more anger, hand-wringing and apologies. So we’re expecting nothing less than a thermonuclear detonation of rage when the freelancers and contractors of the UK learn the full extent of the abuse of limited companies amongst civil servants – and handily, that information has just been made public by way of a leaked memo from Treasury Secretary Danny Alexander.
The memo shows that no less than 2,000 civil servants are paid through Personal Service Companies. I’m just going to say that again – two thousand civil servants are paid through limited companies.
In the memo, obtained by Exaro, Danny Alexander seemed just as shocked by the revelations as you most likely are right now:
“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.
“Departments have provided the Treasury with information in relation to all individuals engaged off-payroll – for payment in excess of £58,200. Over 2,000 such individuals have been identified.”
In the wake of Ed Lester-gate, AccountingWeb calculated he would have saved around £40,000 per year through his limited company – if the 2,000 civil servants mentioned in Alexander’s letter were making savings of just half that amount, HMRC would be losing out on £40 million in unpaid tax every year – around eight times the total revenue from IR35 investigations since 2006!
Alexander seems keen to put the situation to rights, saying that “strict rules” would be introduced. Margaret Hodge, chairwoman of the House of Commons public accounts committee, told The Guardian:
“I am absolutely shocked that what was seen as a rogue case appears to be commonplace across the whole of the civil service. Danny Alexander has promised that our committee will receive a full report and we intend to interrogate vigorously the worst offenders.”
Photo by David Goehring