Will Student Loans chief face an IR35 investigation?

Money, News

IR35 is a perennial pain in the rear-end for the freelancers and contractors of the UK – not least because it is so opaque. We recently covered all the IR35 twists and turns in 2011, and now we bring you news of 2012′s first IR35 malfeasance.

Informations obtained via a Freedom of Information request by Exaro and the BBC has revealed that one of the nations highest-paid civil servants, Ed Lester, Chief Executive of the Student Loans Company, has been channelling his £182,000 pay package through a private company – exactly the sort of behaviour HMRC looks to crack down on through its haphazard enforcement of IR35. By using a company rather than being a PAYE employee, Mr Lester may have avoided tens of thousands of pounds in income tax in the twelve months since he was officially appointed Chief Exec. According to Exaro, Lester is employed as a “consultant” despite his Chief Executive job title.

Shortly after the scandal broke on Thursday it was announced Lester would henceforth be having his income tax and National Insurance Contributions deducted at source – presumably by entering into a traditional employment contract. However as we’ve seen HMRC’s lust for collecting owed taxes is on the increase – perhaps an IR35 investigation is on the horizon?

Is Ed Lester a disguised employee? Lets examine some of the usual IR35 status tests.

Can he provide a substitute?

As Chief Executive, that seems somewhat unlikely.

Is he “in business on his own account”?

Mr Lester has no company website for his consultancy services, works for only one client (the Student Loans Company), appears to be taking no financial risks to stay in business, and even has an expense account with the SLC for a reported £28,600 per year to cover his travel and accommodation. So, it appears not.

Does he appear on company organisation charts?

Erm…yes he does.

Without knowing details of Mr Lester’s day-to-day working life it’s difficult to determine other factors such as Mutuality of Obligation or Direction and Control, however based on the available information we’d say he seems like a prime candidate for an IR35 investigation.

Danny Alexander, chief secretary to the Treasury, has ordered the Treasury to “urgently review” the situation, a spokesperson adding that “the chief secretary believes everybody should pay the right tax at the right time.”

Chairman of the PCG Chris Bryce said:

“The case of Ed Lester is sure to raise claims of hypocrisy and accusations of double standards. On one hand it appears HMRC and senior politicians have been prepared to rubber stamp Mr. Lester’s deal, while with the other they are spending taxpayers’ millions pursuing genuine freelance workers.

“Since the inception of the badly thought out IR35 tax we have been calling on government to introduce clear and unequivocal guidelines for freelancers that are fair and equitable. PCG members want a system in place that lets their growing sector contribute to the economic recovery of the country.

“The Conservative Party had indicated they were keen to scrap IR35 but then performed a rather inelegant U-turn. Perhaps the Lester case will make HMRC and government think again.”

Mr Lester is not the only senior public figure to be caught out by the UK’s complex tax regime – recently Vince Cable was forced to pay a penalty after failing to register for VAT.