By Richard Johnstone | 7 April 2014
The Treasury must do more to boost confidence in the ability of the public sector to manage and report the use of off-payroll arrangements to pay staff, a House of Lords committee has said.
Examining the use of the agreements, which can be used to avoid tax, the House of Lords select committee on personal service companies said Whitehall’s review of the arrangements in May 2012 had significant shortcomings.
The review found that 2,400 staff earning more than £58,200 a year were engaged off-payroll in central government and public bodies, of which around 5% were in senior management positions.
However, the fact the review looked only at central government – excluding many parts of the public sector such as local government – meant it was inadequate, the peers said today.
Following the review, Chief Secretary to the Treasury Danny Alexander introduced new rules 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.
Peers said the limitations of the review meant the impact of the reforms was also restricted, and a more thorough examination was needed. A government analysis of the extent to which off-payroll engagements are used across all public services should be undertaken, also including those earning less than £58,200, who were not part of the original report.
Today’s Personal service companies report also found that implementation of the Treasury regulations differed across Whitehall, and the ministry should also ensure consistent application through more thorough monitoring.
‘Whilst recognising the complexity of the task, we are concerned that the implementation of [the guidance] appears to have been inconsistent, both across and within departments,’ the report stated.
‘The guidance is already limited by its scope, which includes only higher levels of pay and limited parts of the public sector. Inconsistent application further limits its scope, and confusion around how it should be applied – both within departments and within HMRC – runs the risk of undermining any future evaluation of the success of this initiative in encouraging tax compliance amongst off-payroll appointees in the public sector.’
Committee chair Baroness Noakes said the committee agreed more work was needed.
‘We also recommend that further measures are taken to build confidence in the public sector’s management of off-payroll engagements and that the Treasury take a leading role in this.’
