Local Government Association paid two senior officials through service companies

By Mark Conrad | 16 July 2012

Only 13 senior council officials are paid through personal-service companies, MPs were told today. The claim was made by Carolyn Downs, chief executive of the Local Government Association (LGA), which represents councils in England and Wales.

Facing questions from MPs on the House of Commons public accounts committee this afternoon, Downs also revealed that the LGA had, until earlier this year, paid two of its senior staff through personal-service companies instead of deducting tax under the ‘pay as you earn’ (PAYE) system. But she said that she had ended those arrangements.

She said that councils could be justified in using service companies, and revealed that the LGA continued to use part-time “associates” paid through such arrangements.

“Do you… accept the premise… that if you are in a job that is funded by the taxpayer you have a moral duty that may go beyond a legal obligation?”
– Margaret Hodge, chairwoman, public accounts committee, asking about ‘off payroll’ contracts

Downs appeared before the committee at the same time as two top BBC officials were grilled over ‘off payroll’ contracts.

The committee also questioned senior figures from Whitehall and HM Revenue & Customs (HMRC) over the issue.

Speaking to Exaro shortly after her appearance in Parliament, Downs revealed that one LGA official had been paid through a service company while he held an interim post, but had “since been moved onto the organisation’s payroll.”

A second official, she explained, was paid through a service company while on a fixed-term contract.

That contract had not been renewed, she said.

During the hearing, Margaret Hodge, Labour MP and the committee’s chairwoman, asked Downs: “Do you, on behalf of local government, accept the premise that is accepted here in Parliament, by ordinary punters, that if you are in a job that is funded by the taxpayer you have a moral duty that may go beyond a legal obligation to ensure that you employ people in such a way that would contribute to PAYE and National Insurance back to the public purse?

“Do you accept, and do your members, accept that?”

Downs replied: “I would say, very largely, yes.”

Since being called to appear before the committee, Downs said, she had written to the LGA’s nine regional bodies to find out how widely local government used service companies.

Seven bodies responded and revealed that just 13 senior managers, those earning more than £50,000 per year, used such arrangements. She said that one of those managers was a council chief executive.

The figure is less than the 100 “permanent employees” at councils throughout the UK said in March by BBC Radio 4’s File on 4 programme to have been paid through limited companies.

Hodge expressed concerns specifically that Barnet Council in north London might be paying officials through service companies.

She asked the LGA to provide the committee with details of the borough’s contracts.

A Conservative MP on the committee, Richard Bacon, added: “And not just the current status, but also their last two years or so. If it has changed recently… then we would like to know.”

The hearing comes after Exaro revealed last month how council officials working ‘off payroll’ were set to escape a tax investigation because a review by local government had been thwarted.

Eric Pickles, communities and local government secretary, had written to the LGA about officials’ contracts.

However, ministers fell short of forcing town halls to review the practice, and proved powerless to halt such tax-beneficial contracts.

Instead, they merely issued fresh Whitehall guidance on pay arrangements.

HMRC is launching an investigation into the practice of civil servants working ‘off payroll’. It is using the results of a Treasury review to open investigations into the “highest-risk cases” of suspected tax underpayment by senior public officials.

Accountants estimate that HMRC could recoup up to £50 million in unpaid tax and national insurance, plus another £50 million in interest and penalties.

But HMRC will be unable to carry out a similar exercise for local government because there has been no review.

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