Off-payroll Engagements

(Limited Text - Ministerial Extracts only)

Tuesday 11th March 2014 Written Statements

[The Chief Secretary to the Treasury (Danny Alexander)]

Today, I am announcing the conclusions of HM Treasury’s evaluation of Departments’ compliance with the rules governing off-payroll appointments in central Government.

New, tighter rules were established in May 2012 when I published the review of the tax arrangements of public sector appointees. This review revealed that more than 2,400 public sector appointees were engaged off-payroll in central Government Departments and their arm’s length bodies (ALBs).

Off-payroll workers play an important role in helping Departments meet short-term needs for specialist advice and interim service. The majority of these types of arrangements will have been in place for legitimate commercial reasons.

However, the number of off-payroll engagements found in the review, and the length and size of these contracts, suggested it was possible for artificial tax minimisation to be taking place.

The Government are committed to tackling tax avoidance and evasion and ensuring that everyone pays their fair share of tax. It is essential that Government Departments are able to assure themselves that their off-payroll workers are meeting their tax obligations.

The recommendations of the May 2012 review mean that the Departments’ most senior staff must now be on payroll, and Departments will have stronger powers to seek assurance in relation to the tax arrangements of their long-term, high-paid contractors.

In May of last year, I asked the Treasury to evaluate compliance with these new rules. The results of this evaluation are summarised below, along with any actions subsequently being taken.

Below board-level off-payroll engagements

The rules for new off-payroll engagements apply where the engagement is for more than six months with a daily rate above £220—or £58,200 per year. All new engagements from 23 August 2012 meeting these criteria must include contractual provisions that allow the Department to seek assurance that the worker is paying the right amount of tax and national insurance contributions and to terminate the contract if assurance is not provided. For any individuals where their engagement has been terminated, ended as a result of the assurance process, or ended after assurance was sought but before it was received, Departments have been asked to provide personal details of the worker to HMRC for further investigation of tax avoidance.

In accordance with the guidance, Departments adopted a risk-based approach in deciding which contractors to seek formal assurance from. Departments sought assurance on the tax affairs of 1,940 of their contractors and received satisfactory assurances from 1,815 of these engagements. In 125 cases contracts were terminated or came to an end before assurance was received.

Further details can be found in the table annexed.

The results of this review suggest that the majority of core Departments are operating the new rules effectively. This has resulted in a number of engagements, where adequate assurance was not provided, being brought to an end. Departments have referred all these individuals’ details to HMRC for further investigation.

Board-level and senior appointments

The guidelines set out in May 2012 also specified that, regardless of their tax arrangements, board-level officials and those with significant financial responsibility should be on the payroll of the Department or other employing body. This is unless there are exceptional circumstances, and such exceptions should not exist for longer than six months.

As a result of the recent review, I can announce that HM Treasury have uncovered three cases which have breached these rules. As a result I will be imposing sanctions on the resource budgets of two Departments equalling a total of £500,580.

I will be imposing a sanction of £102,080 on the Department for Environment, Food and Rural Affairs for a breach of the guidelines at the Animal Health and Veterinary Laboratories Agency (AHVLA). This related to a senior financial officer who was originally engaged off-payroll by AHVLA and brought onto payroll more than six months after being engaged.

I will also be imposing a sanction of £398,500 on the Department for Transport for two breaches. This relates to the chief executive and finance director at Directly Operated Railways Ltd who were originally engaged off-payroll and brought onto the payroll more than six months after the guidance came into effect.

Where this review has encountered below board-level appointments with significant financial responsibility that are in place to maintain the delivery of critical and time-limited projects, they have not been required to be on the payroll. This is subject to the strict requirement that all such engagements should be subjected to the assurance process to determine that they are paying the right amount of tax.

The Ministry of Defence has also brought to my attention two non-executive board members who have not been brought onto payroll within six months of the guidance coming into effect. The value of the salaries in question was considerably below the £58,200 annual rate at which we are normally interested in similar cases, the individuals involved have provided assurance as to their tax arrangements, and effective actions have now been taken to resolve these appointments. I have therefore decided not to impose sanctions in these cases.

It is also important that these rules are complied with in the wider public sector. I have, therefore, asked the Secretary of State for Health to conduct a full investigation into all senior off-payroll NHS appointments to ensure that all employers are taking adequate action to prevent possible tax avoidance.

The public sector needs to demonstrate the highest standards of integrity and it is essential that Government employers are able to assure themselves that their senior and highly paid staff are meeting their tax obligations. Each Department is responsible for seeking assurance as to the tax arrangements of the off-payroll appointees in the Department and arm’s length bodies, and judging whether the evidence presented is satisfactory to demonstrate that the appointee is meeting their tax obligations.

I will continue to monitor compliance with the HMT guidelines and intend to conduct a similar review for the 2013-14 financial year. I will report to The House on these conclusions.

Annex 1: New off-payroll engagements between 23 August 2012 and 31 March 2013, for more than £220 per day and for more than six months