Back in December, Simon Burns, the health minister, gave assurances that no civil servants were paid via personal service companies and that such an arrangement would be against the department's policy anyhow. This was in a written parliamentary answer to a question posed by shadow Cabinet Office minister, Gareth Thomas. 'The Guardian' newspaper has however discovered the real truth causing the Department of Health to issue an apology for being unintentionally misleading and clarifying “that no civil servant who is an employee of the Department of Health is paid in this way.”
At least 25 personnel have been engaged by the Department of Health via their personal service companies under contracts valued over £4 million. Many of these are listed on staff directories as full-time legal, I.T or HR consultants. Some of the salaries meted out by the Department would be considered very large; 19 payments over £100,000, 12 of which exceed £150,000 and 5 over £250,000, although some of these spanned more than a year. In one specific case, the Milton Keynes Hospital paid its acting chief executive, Mark Millar, via a partnership called Millar Management Associates.
The Department of Health will now consider whether to terminate these contracts or to wait until the end of March when the Treasury review of 4,000 civil service posts, involving the use of personal service companies, within Whitehall and its quangos is concluded.
Head of the senior civil servants' union the FDA, Jonathan Baume, slated the arrangements as a “shambles” and called for transparency. He revealed that the last Labour government had encouraged the deals because the requisite market rates were greater than the civil service could offer as a salary.
Tax avoidance within the public sector is expressly forbidden and the Department of Health confirmed that whilst it does not engage personal service companies to enable individuals to pay less tax, nevertheless there are some skills that the Department lacks and cannot recruit from within and it has to resort to using freelancers.
These latest revelations that follow last week's uncovering of the Student Loans Corporation scandal, as well as causing embarrassment to the government, are particularly damaging to HMRC in its policing of IR35. If full time permanent staff are being allowed to operate through their own personal service companies then this practice clearly has to stop otherwise the Revenue's employment status tests and arguments are scuppered and all bets are off.
Should someone also investigate the HMRC staff for adherence to this policy? It seems endemic to me.
Has anyone actually established yet that these service companies have either complied with IR35 and paid tax/NI or have escaped IR35 because they don’t meet the conditions, or have just ignored it?
The DoH and NHS would (quite rightly) have no idea about the contractors’ personal tax affairs, just like most of the papers slagging off the government for using contractors through service companies. The Guardian seems to think these contractors only pay corporation tax, and forget to mention the need to pay more tax when the money is extracted, and the possibility of PAYE and NI being paid under IR35.
HMRC may have been on the case already? They certainly should be now.
There have been some very unbalanced and confused stories in the media recently, clearly trying to fuel animosity towards Personal Service Companies. This is another.
The article clearly implies that PSCs exist purely as a tax dodge and there is no mention of the lifestyle choice or the benefit to the client that a PSC can bring.
There is of course a danger of abuse of the system, but IR35 tests are (relatively) clear and surely should be applicable across all sectors and industries, and disregard the value of contracts.
Articles like this just muddy the waters.
I would like to see the contracts involved (FoI request?) as, according to a statement issued by HMRC recently, they fully comply with HMRC’s rules. If that’s true, then all I have to do is copy the exact wording and I’m in the clear with IR35!
(Or am I being naive?)
This article does not imply PSCs exist for the purposes of tax avoidance. They are a perfectly legitimate business vehicle that can be used in acceptable tax planning & CW supports all contractors who are genuinely self-employed by reference to the employment status tests. The intention of the article was to highlight any potential abuse of PSCs if these NHS contractors are no more than disguised employees. If they are & have not declared themselves to be inside of IR35 then it is only right & proper that the matter is brought to the public’s attention as the Guardian has attempted to do. Surely we all want fair play across the board??
Agree we want a level playing field.
The paragraph that concerned me most in this article was “Many of these are listed on staff directories as full-time legal, I.T or HR consultants. Some of the salaries meted out by the Department would be considered very large; 19 payments over £100,000, 12 of which exceed £150,000 and 5 over £250,000, although some of these spanned more than a year.”
What is the relevance of whether someone is listed on the directory or what they have been paid?
When the incident with the Student Loans Corporation was reported, the emphasis was on how much tax was being avoided without reference to terms of contract. Only when the detail was revealed did the situation look suspect. i.e. a 2 year fixed term contract paid through a PSC looks open to IR35 claims. I feel similar detail would have enhanced this article.
Being listed on a staff directory is not in itself conclusive but neither is it helpful particularly if a contractor is being identified with the organisation (integration). The relevance of revealing the rate of remuneration is that if those individuals are disguised employees then there maybe a strong likelihood that the Treasury has been denied much needed revenue.
Without knowing the full contractual details & working practices we can only speculate but when a hospital is paying an acting chief executive (an office holding by definition) via a partnership eyebrows will naturally be raised particulary in the current economic climate when many people expect high earners to pay the right amount of tax.
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