Civil servants can minimise how much tax they pay by working as a consultant through a personal-service company – rather than as an employee.
One former tax inspector, Alastair Kendrick, explained how this could help someone pay less tax. He calculated the theoretical levels of tax for someone earning a remuneration package of £182,000 excluding expenses, in the financial year for 2010-11.
The Student Loans Company (SLC) agreed to pay up to that amount through a personal-service company to its chief executive, Ed Lester.
Kendrick, a senior tax expert at the accountants, MHA MacIntyre Hudson, said: “From the information I have seen, he is an officer of a company, and it would be unusual for someone in this capacity to be paid through a personal-service company.”
If a civil servant working for a public body earned £182,000 in salary as an employee, said Kendrick, income tax for the year would be £69,000, and employee’s national insurance £7,021. This makes total tax of £76,021.
“All other executive board members are now on Standard Loans Company contracts of employment” – Student Loans Company, annual report for 2010-11
In addition, the public body would have to pay £24,140 for employer’s national insurance.
The same civil servant working as a consultant through a personal-service company, said Kendrick, could make some charges against the £182,000 income. He suggested £520 for use of the home for office space, £6,000 salary for the spouse and general expenses of £1,000.
The consultant could take the minimum wage from the personal-service company, he said. This would mean paying income tax of £2,529 and employee’s national insurance of £650 and employer’s national insurance of £769.
The personal company would pay £32,213 in corporation tax, and the civil servant would take £128,000 in dividends, on which £13,333 in tax would be due. This means total tax of £49,494, which is £26,527 less for working as a consultant.
In addition, the public body would have to pay no national insurance.
Kendrick’s calculations are illustrative, and it is not suggested that they reflect Lester’s actual arrangements.
Exaro has established that three other members of the SLC’s executive board have been paid through companies.
However, they only worked on this basis while in “interim” posts at the company. Documents obtained by Exaro show that Lester’s contract with the SLC enabled him to avoid being taxed as if he were an employeebeyond his interim post.
Lester took up his post after the sudden resignation of his predecessor. The company’s annual report for the financial year to March 31, 2011 says: “All other executive board members are now on standard Student Loans Company contracts of employment.”
David Wallace joined the company in March 2010 as an independent consultant in the role of interim chief operating officer, before going on the staff a year later.
The report says: “David Wallace was appointed deputy chief executive and director of strategic development in March 2011, having worked with the company as an independent consultant in the role of interim chief operating officer since March 2010.”
The SLC paid £223,000 to MacDonald Wallace Ltd “for services provided by David Wallace as an interim member of the executive board in the period to March 7, 2011”, according to the report. It paid the company £7,000 for his services at the end of the previous financial year.
After becoming an employee, he was paid a further £8,000 directly for the rest of March 2011.
Taroub Zahran joined the company as an independent consultant in April 2010 in the role of interim director of human resources, and went on the staff eight months later.
The same report says: “Taroub Zahran was appointed director of people and transformation at SLC in February 2011, having worked with the company as an independent consultant in the role of interim director of human resources and organisational development since April 2010.”
The report indicates that the SLC initially paid her direct until September 2010, when it began paying through a company.
It shows that the SLC paid her £77,825 directly for the period April 27, 2010 to Friday September 17, 2010. However, from Monday September 20, 2010 to March 13, 2011, it paid £67,925 to TZ Partnering Ltd “for services provided by Taroub Zahran… as an interim member of the executive board.”
And Harry Taylor worked for three months from April 2010 as “an interim member of the executive board” as director of marketing and communications.
During 2010-11, the SLC paid £55,000 for his services. The report says: “Under the terms of Harry Taylor’s appointment, £55,000 was paid to Harry Taylor Consulting Ltd as an interim member of the executive board in the period to July 30, 2010”.
The SLC said that Lester’s tax arrangements were a matter for him and HMRC, but that he declined to comment.
Pressed on the fact that three other executives had enjoyed similar arrangements, an SLC spokeswoman added: “The interim directors were hired at a time when the SLC was in extreme difficulty operationally.”
“Both David Wallace and Taroub Zahran were then appointed on a permanent basis early in 2011 and have been paid through the SLC payroll since the dates of these appointments.”