Latest Public Sector News

05.03.15

94 senior civil servants fired for breaking Treasury tax rules

Nearly 100 senior civil servants have been fired for breaking Treasury rules by being paid ‘off the books’ through companies.

The Department of Health and Ministry of Defence have also been fined a combined total of £1.5m for failing to adhere to the Treasury guidelines in regards to staff tax arrangements.

The rule in question is IR35, which says that people cannot be ‘disguised employees’ by paying themselves through companies. HMRC has been investigating potential breaches of the rule for a number of years.

An information release from the Treasury shows that last year 94 people across the Civil Service were asked to leave their employment because they were unable to “provide evidence that they were meeting their tax obligations”. Of that number 79 worked for NHS England, 12 worked for the environment department, two worked for the Office for National Statistics and one worked for the British Library.

Chief secretary to the Treasury Danny Alexander MP said: “I introduced tough new rules to tackle tax avoidance by off-payroll workers in the public sector in 2012, and it’s heartening that the vast majority of departments are compliant in ensuring that all their contractors are paying the correct amount of tax.

“The Treasury review for 2013-14 shows that where senior or higher paid workers have been unable to provide assurance that they are paying the right tax, their contracts have been terminated and their details passed to HMRC.”

The rules were introduced after a Treasury investigation uncovered 2,400 public sector employees were paying themselves through companies for tax breaks.

Running earnings through a personal service company means the firm pays corporation tax – as low as 2% – rather than personal income tax at up to 45 per cent, plus national insurance.

All expenses can be deducted from earnings before profits are calculated. The individual can also minimise their tax bill further by leaving “profits” in the company, paying themselves in small dividends.

Government departments are also now responsible for keeping track of their employees tax arrangements and the MoD and DH face fines for not doing it well enough.

The MoD will be fined £1m for failing to seek assurance from a number of workers on their tax arrangements. While the DH will be sanctioned £470,740 for two breaches at NHS England, where two board members were off-payroll for over a year. In both cases the individuals provided the necessary assurance to NHS England regarding their tax arrangements.

Alexander added: “While 95% of government departments are broadly following the new rules, the Ministry of Defence and an arm’s length body of the Department of Health have not been able to fully satisfy the strict rules. I am imposing fines on these departments as a result.

“I do not believe that less funding should be available to the users of the health service or our armed forces as a result of these mistakes, which is why I’m donating the proceeds of these fines to relevant charities. £1m will go to military charities who do so much to support our serving soldiers, veterans and their families, whilst £470,740 will support charitable health initiatives across the country.”

Alexander is also working communities secretary Eric Pickles and mayor of London Boris Johnson to ensure that local government employees are following the same rules.

Any public sector worker earning more than £58,200 and employed for more than six months through a service company must give their employer assurances they are not securing an undue tax advantage.

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