We may never work in public sector again, warn officials alarmed by new Treasury rules
By David Hencke | 17 August 2012
Civil servants are complaining that the crackdown on working ‘off payroll’ is proving much tougher than they expected.
Under the crackdown, civil servants must go on the payroll unless they can prove that they are paying full tax and national insurance contributions (NICs).
It follows Exaro’s revelations in February that the Student Loans Company (SLC) was paying its chief executive, Ed Lester, through a personal-service company without deducting tax or national insurance under concessions granted by HM Revenue & Customs (HMRC).
“The ‘assurance guidance’ appears to be much firmer than many expected”
– George Anastasi, PCG adviser on policy and external relations
Civil servants such as Lester have been able to work through personal-service companies instead of paying income tax under the ‘pay as you earn’ (PAYE) system. They were able to minimise their tax payments by choosing the salary that they drew from their personal companies.
Exaro has obtained a copy of draft “assurance guidance” being distributed throughout Whitehall that details the new rules, which apply to civil servants earning more than £220 a day and working ‘off payroll’ for more than six months.
PCG, the professional organisation that represents freelancers and contractors, including in the public sector, is worried about the toughness of the assurances required.
George Anastasi, PCG adviser on policy and external relations, writes in a letter to colleagues: “The ‘assurance guidance’ appears to be much firmer than many expected, restricting the allowable ways in which an individual can assure their engager that they are paying the correct amount of tax.”
A PCG spokesman told Exaro: “We are getting very worried that some departments are becoming risk-averse and even asking people paid less than £220 a day, or working for less than six months, to go on the payroll.
“Some contractors are coming to us and saying that they may well never work in the public sector again.”
A letter written by Howard Orme, finance director at the Department for Business, Innovation and Skills (BIS)– which oversees the SLC – reveals that the Treasury has set up a working group of representatives from Whitehall departments that meets every fortnight to implement the changes.
In the letter, which was leaked to Exaro, Orme tells accounting officers and chief executives of BIS agencies: “I have set up a separate review of ICT [information and communications technology] engagements across BIS and partner organisations. With significant change in motion, particularly in ICT, I want to ensure that this implementation does not become a barrier to change.”
Danny Alexander, chief secretary to the Treasury, told Parliament in May that senior civil servants working ‘off payroll’ for more than six months would have to prove that they were paying their fair share of tax or have their contracts terminated.
The new rules will apply from September 15. The draft “assurance guidance”, which sets out what counts as acceptable proof, has unsettled many civil servants.
Departments will have to seek “further assurance” from anyone working through an intermediary. The draft guidelines say: “The worker can provide evidence that they are putting all of their salary paid by the department through a company and withdrawing it under PAYE. This can be evidenced by the production of payslips.”
Referring to the IR35 rules designed to stop people avoiding tax through the use of personal companies, the guidance continues: “The worker can provide evidence that they are operating the IR35 legislation on the payments received from the department. This applies if the payments are received by a personal-service company.
“This can be evidenced by the provision of a ‘deemed calculation’. This is a calculation that requires the worker to consider all the income for the year from a particular contract that is within IR35, make a ‘deemed payment’ to HMRC for employer NICs and pay employee NICs and PAYE on the remainder of the income.”
“If unable to evidence either of the above, the worker should be able to show that their service company is low risk for IR35, according to HMRC’s ‘business entity’ tests.”
“If the worker is medium or high risk according to HMRC’s ‘business entity’ tests, but feels that they are outside the scope of IR35, then they will need to provide assurance in a different way, for example, following a contract review by HMRC’s independent IR35 helpline.”