Select committee to hold hearings into routing pay via personal-service companies
By David Hencke | 10 July 2012
“I have asked the BBC and the Local Government Association to come before the committee to answer questions about tax avoidance”
– Margaret Hodge, chairwoman, public accounts committee
MPs are summoning chiefs from the BBC and local government to explain why they pay so many people ‘off payroll’.
The powerful House of Commons public accounts committee is to examine why public bodies have agreed thousands of contracts with civil servants and other officials that enable them to reduce their tax bills by routing their pay through personal-service companies.
Margaret Hodge, the cross-party committee’s chairwoman, revealed to Exaro plans for the new investigation, saying that she hopes to set hearing dates before Parliament rises for the summer recess next week.
She is waiting to hear who will attend hearings on behalf of the BBC and the Local Government Association, which represents councils in England and Wales.
The committee’s move was triggered after an investigation by Exaro, together with BBC2’s Newsnight, revealed in February that the Student Loans Company was paying its chief executive, Ed Lester, through a personal-service company without deducting tax or employee’s national insurance under concessions granted by HM Revenue & Customs (HMRC).
The committee will also summon representatives from the Treasury, which carried out a review in Whitehall following Exaro’s disclosures. Danny Alexander, chief secretary to the Treasury, told Parliament in May that 2,400 senior civil servants were avoiding millions of pounds in tax through such contracts.
Hodge, a Labour MP, said: “The starting point for the inquiry is the report produced for Danny Alexander.”
“But the report does not cover the whole picture so I have asked both the BBC and the Local Government Association to come before the committee to answer questions about tax avoidance.”
Exaro revealed in March that around 3,000 people working for the BBC are paid through personal-service companies, with five earning more than £150,000 a year without having tax deducted at source through the ‘Pay as You Earn’ (PAYE) system. Another 31 people earn more than £100,000 a year under similar arrangements at the broadcaster. The figures excluded ‘talent’, such as presenters.
The figures were released by the BBC in response to a request under the Freedom of Information Act (FOIA) from David Mowat, a Conservative MP.
He told Exaro today: “It is right that this practice is examined, and these highly paid people asked to pay PAYE like the rest of us.”
The BBC argues that the use of service companies is standard practice in the broadcasting industry and was within HMRC guidelines. A spokeswoman said: “The BBC will be attending the public accounts committee hearing on Monday, July 16. It is standard practice to attend select committees throughout the year to discuss a variety of topics.”
Alexander had wanted the BBC to be included in the Treasury review. However, Jeremy Hunt, culture secretary, pointed out that ministers could not order the BBC to review its contracts.
The BBC came to an agreement with Hunt to disclose only that all members of its executive board are on the payroll, and no further action has been requested by Whitehall.
But George Entwistle, who was named only last week as the BBC’s new director general, faces questions over why the BBC has so many people working ‘off payroll’, and who are the five high-earners paid more than £150,000 a year through personal-service companies.
Stephen Barclay, a Conservative MP on the committee, said that MPs will want to ask detailed questions surrounding the tax-avoidance scandal among senior public officials.
He said: “There appears to have been a misunderstanding between HMRC rules and the people being allowed to do this.
“Either people have been financially cheating the tax authorities, or the HMRC have been allowing this under the rules, or both.”
Public officials are able to save themselves tens of thousands of pounds a year in tax by routing their pay through personal-service companies.
HMRC is launching an investigation into the practice of civil servants working ‘off payroll’. It will 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.
Additional reporting by Susan Cooke.
Update 13 July 2012: The hearing has been scheduled for Monday July 16. The committee has announced that the witness called to give evidence are: Carolyn Downs, chief executive, Local Government Association; Zarin Patel, chief financial officer, and David Smith, head of employment tax, BBC; Sir Nicholas Macpherson, permanent secretary, the Treasury; Howard Orme, finance director, Department for Business, Innovation and Skills; Lin Homer, chief executive and permanent secretary, HM Revenue & Customs; and William Hague, executive director, ‘efficiency and reform group’ at the Cabinet Office.