As the newspapers get more interested in the taxation of the civil service, fresh revelations of abusive tax practices, apparently sanctioned by HMRC, are emerging weekly.
From last week: it transpires that the Whitehall practice of allowing senior civil servant employees to opt out of the PAYE system to save their tax and so boost their pay and allowances is not just limited to the Student Loans Company and HMRC. According to reports in the Guardian some 25 health bosses from the Department of Health are effectively “off-balance sheet”.
Those involved are paid via personal consultancy companies, and so even if they do account for tax under IR35 the individuals are also able to benefit on obtaining tax relief on expenses including travel and 5% of income. It seems unlikely from reports that IR35 is applied or enforced by HMRC.
One can speculate why such practices of false self-employment are appealing - the need for government departments to show reduced levels of employees at management level, or demonstrate staff cuts, all ensuring that the need to show lower wage budgets are met. Clearly, a blind eye has been turned all round.
The papers have so far missed off some of the other practices on-going reported by some of our subscribers. The two which have generated the most discontent amongst accountants and advisers (who do not normally complain too much about these things) in recent months are as follows:
The NHS clinic
Hospital consultants are engaged to work on NHS contracts – as employees and paid a fixed rate. They perform way less than minimum hours contracted, this frees up time to run their private clinics. The private clinic then operates from the same hospital, on the same patients, using the same staff, clinic space and equipment however the consultant is self-employed, or later incorporates the private practice and secures substantial tax relief under Entrepreneurs’ Relief. The objection here is that many consultants are effectively being paid twice.
Ministry of Defence
Technician employments have been greatly reduced in recent years, however the MOD now engages all manner of its ex-employees via umbrella companies, a great number of which have set up exclusively to manage these contracts. The umbrellas operate PAYE and NICs, but the worker obtains tax relief for travel and subsistence, which would not otherwise be tax deductible. The objection here is for the plight of the workers – the umbrella companies’ fees leave them financially no better off than when they were employees however they have also lost their employment rights.