I have a version of the following on the Guardian's Comment is Free site tonight: and I share it here in haste:
The news http://www.guardian.co.uk/
It is shocking because, as H M Revenue & Customs say on their website, it is the duty of an employer to determine the proper status of their employee and in particular whether they are self employed (which term, they make clear, also covers those working through a limited company) or not. As HMRC put it, if this is not done http://www.hmrc.gov.uk/
it creates unfair competition between those businesses that meet their responsibilities and those that do not. It also creates unfairness where, for instance, two workers engaged on the same project and performing the same tasks for separate businesses are not paying the same tax and NICs due to the incorrect classification of one of them.
No one could have put it better: As HMRC say, there is unfairness at the core of what is now known to be happening in Whitehall.
It's also shocking that this is being done to curry favour with those on the highest levels of pay: this is shocking government encouragement of inequality.
There is much more to it than that though. This is not just unfair; it's illegal and an employe can be penalised for getting it wrong. As a result HMRC publish clear guidelines to make sure no one can make a mistake about who is and is not self employed in situations like this.http://www.hmrc.gov.uk/calcs/
That can only mean that these payments made to people through their own so-called consultancy companies mean that at the core of Whitehall there are senior civil servants willfully ignoring the requirements of tax law. And that will be true even if the people receiving these payments work for more someone else in addition to their civil service work: as the rules and case law make clear, two part time jobs never make a full time self employment. As the PAYE regulations make clear, each separate engagement has to be decided on its own merits and the right rules must be applied. But as the level of pay in the cases now highlighted indicates, the chance of any recipient undertaking much other work is, in any event, really quite low.
In that case it is this willingness to ignore the law that is really shocking in this case. Tax and government go together like, as Frank Sinatra would have put it, a horse and carriage: you can't have one without the other. And yet these payments make clear that the tax abuse that has over the last thirty years come to undermine the credibility of the accounting and legal professions and the corporate world has now so thoroughly permeated Whitehall that no one has even seen how corrosive these payments are.
That means that at the very heart of government the operation of tax law that is central to the credibility of government revenues is now being ignored by the people who are charged with maintaining our state, and all because they so lack conviction in what they do that they have over time outsourced so much of their decision making to consultants that those same consultants (mainly in the accounting and legal professions) can now price anyone working on public sector policy out of the price-reach of government employment, so forcing this corruption on the civil service. This is the inevitable consequence of our having had what I describe in my book The Courageous State http://www.searchingfinance.
In that case this is not just a technical issue requiring the technical fix of putting these people on the payroll. What it really says is that we need a new breed of courageous politicians who will stand up for the state and all it can do for itself and who will at the same time uphold tax law, the obligation that all employees be treated equally whether in state or private sectors, and who will also rightfully demand a civil service able to make up its own mind in the public interest without outsourcing all key decisions to consultants. Right now we don't have those politicians and yet without them what is clear is that our whole system of government is at threat, and with it our society as well. That's why I argue we need the Courageous State we have not got.
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Richard,
In your view would the people who have been avoiding tax in this way have any retroactive liability for tax that they have not paid?
Thanks
Alexis
HMRC has a right to challenge them and their ’employer’s’
In fact, the focus most be put on the ’employer’s’ to stop this abuse
A good piece Richard, which sets out for Guardain readers who may not follow your blog what’s at the (rotten) core of this policy – for that is what it is.
But I have question for you. Given how widespread we are about to find this practice is (as readers of Private Eye will know), don’t you find it pretty amazing that HMRC hasn’t picked up on this before? After all, as the head of the First Division Association made clear yesterday, this arrangement is – as with so many things in government that stink – a product of New Labour (but then who’d be surprised given the tax arrangements and Blair, Mandelson, et al) and so has been going on for years.
In fact I find myself wondering whether there aren’t people in HMRC who have entered into the same arrangements. Given the clear preference for encouraging questionable tax settlement/arrangements of their most senior management the culture within the organisation is hardly likely to discourage such activity.
I am certain this s commonplace – as is also the abuse of t that my research has found
I have no problem with companies if they are genuinely trading and properly regulated
But we have a pandemic of abuse now, undermining PAYE and tax revenue and of simple non-compliance. Any government that really believes in markets has to tackle this to provide the foundations for a genuine Market before we descend into a criminogenic environment
labour could be that champion.
Will it rise to the challenge?
Not while the leader’s brother and probably many many past and present prominent members of labour use the same loophole. Money for their after dinner speeches or providing ‘consultancy’ should have the same income tax and NIC as normal employees.
Except that providing an after dinner speech is not an employment, disguised or otherwise, so respectfully, that’s just wrong.
But it does show how stupid those on the right, as I am sure you are, can be when seeking to make a point about which they know nothing
Some would say that HMRC have indeed done something very similar in respect of the services of a former CIO, Deepak Singh:
http://www.ifaonline.co.uk/ifaonline/news/1724782/hmrc-consultant-gbp150k-months
However, this was a payment for services after his formal leaving date as part of a transition to the new CIO. I suppose it could be argued this was a short term arrangement for a specific purpose and was not an extension of his employment contract.
In any event, HMRC certainly has egg on its face over its decision to transfer the management of its estate to Mapeley, an off-shore company, who promptly transferred the properties to an offshore subsidiary to ensure that any gains were exempt from UK tax. At this rate, I’m expecting Philip Green to be the next CEO.
Such things always look like employment contracts
“it is the duty of an employer to determine the proper status of their employee and in particular whether they are self employed (which term, they make clear, also covers those working through a limited company) or not.”
Don’t go by everything that appears on HMRC manuals is gospel. It is not. The above quote is wrong. If a person superimposes an intermediary between themselves and the alleged “employer” there is nothing that HMRC can do to by way of forcing the “employer” to make payments of PAYE. That is why the IR35 legislation is there from s48 et seq of ITEPA 2003. If that quote from HMRC is correct then there wouldn’t be any need for that legislation.
This whole Lester story has allowed a complete lie to get about that such arrangements are illegal and even that HMRC “approved” these arrangements when they have no such powers.
Respectfully – that is just wrong
It would have been nice of you to admit that you were wrong or provide a rebuttal, but I guess that’s asking too much.
It is this bit which is wrong:
“which term, they make clear, also covers those working through a limited company”
No it does not.
Why would the IR35 rules exist if HMRC could rely on existing law to force PAYE payments where there was in reality an employer/employee relationship?
I have not bothered to engage because as is clear from your other comments you are a pedant hiding behind a wall of denial that anything could ever be wrong.
What I find amusing is that the only person of your name I can find is not an accountant at all, but trained as an actor and now works for a tax recruitment agent, who have no interest at all in maintaining contracting companies in their current arrangements. Why didn’t you disclose your conflict of interest?
What about the hundreds of non-EU IT workers at HRMC sites in Telford etc that pay little or no tax and national insurance?
Consultancies transfer them into to the UK and most of their “salary package” is treated as business expenses. SSCR 2001 gives them an exemption from national insurance contributions for the first 52 weeks. Many are rotated roughly every 1 to 2 years to maximise the tax savings. It also “creates unfairness where, for instance, two workers engaged on the same project and performing the same tasks for separate businesses are not paying the same tax and NICs”.
Last year, about 20,000 non-EU IT workers were “intra company transfer’ed” to the UK by consultancies mostly to work at third party sites (and you could list many government bodies and most of the FTSE100 as the clients) and I probably single handedly paid more NIC than the whole lot put together. Some even have base salaries that are less than the national minimum wage.
Except for the NMW side, it is all entirely legal.
This is a major issue that has to also be tackled urgently, I agree
And right now n party is – but I consider this a complete abuse of UK tax sovereignty
A vigorous response and a manifesto commitment from the Labour Party is called for. Preferably before the responsible co-alition ministers start desperately blanketing the area with foam and stage smoke.
It’s also shocking that BBC journalists, news readers and anchors use the same tax abuse system. Many of them report this on the news yet greatly benefit from this arrangement. Without putting a specific name on any journalists, some pretty well know people should alos be in the firing line.
the evidence that we need a ?courageous approach to tax is growing by the day