DfT and Defra broke Whitehall rules on contractor pay

11 Mar 14
The Treasury has levied more than £500,000 in fines against two Whitehall departments following breaches of government rules on the use of off-payroll contractors

By Richard Johnstone | 11 March 2014

The Treasury has levied more than £500,000 in fines against two Whitehall departments following breaches of government rules on the use of off-payroll contractors.


Chief Secretary to the Treasury Danny Alexander today published the first evaluation of the rules governing the use of off-payroll deals, where individuals are paid through personal companies. This means income is not taxed at source, and the arrangements can be used to avoid tax.

Following a review of the practice in May 2012, Alexander introduced restrictions so that any contractor working with government for more than six months must provide satisfactory assurances on their tax affairs. In addition, senior appointments at board level or with significant financial responsibility must be on the central payroll within six months.

According to the figures published today, 94% of government contractors have been able to provide satisfactory assurance that their tax affairs were in order since the new rules were introduced. In the remaining 6% of cases, covering 125 former government contractors, details have been passed on to Revenue and Customs for investigation.

Two departments had breached the six-month protocol, Alexander stated, and the Treasury had issued financial penalties against them.

The Department for Transport received a fine of £398,500 in relation to two senior appointments at Directly Operated Railways, which runs the East Coast rail line.

In addition, the Department for Environment & Rural Affairs received a fine of £102,080 for a breach at the arm’s-length Animal Health and Veterinary Laboratories Agency.

In both cases, individuals were paid off-payroll for more than six months, but this has now been changed. 

Alexander said the vast majority of off-payroll contracts are in place for legitimate reasons, and often played an important role in satisfying short-term needs for specialist advice and services.

‘However, it is right that the public sector sets the highest standards in terms of its tax arrangements and that departments continue to assure themselves that all their workers are paying their fair share of tax,’ he added.

‘I am pleased that this guidance is working and that compliance has been so high. The minority of cases which do not appear to be consistent with the guidance have been passed on to HMRC who will now investigate these.’

Alexander also announced he has asked Health Secretary Jeremy Hunt to conduct a investigation into all senior off-payroll NHS appointments to ensure adequate action is being taken to prevent possible tax avoidance.


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