Sweetman: More shocks on civil servant contractors

Personal services companies in the civil service were the lead item on last night’s ‘Newsnight’, 13 years after the notorious IR35 press release was first issued. Simon Sweetman was not impressed.

Margaret Hodge is shocked (and so is Danny Alexander) by the revelation that “2000 senior civil servants are using companies to avoid or mitigate tax”. But is it what it seems?

Part of this illustrates, as always, how little the media understand about tax. The BBC ran this on ‘Newsnight’ with Tory MP Richard Bacon, Jonathan Baume from the First Division Association, and Emma Boon from the self-styled Taxpayers’ Alliance – a body that represents nobody and won’t say how it is financed. It is extraordinary that the BBC continues to give credibility to this lobby group. Admittedly their spokesperson had a problem here since in general they approve of tax mitigation, but don’t approve of civil servants.

So who are these 2000? It would be surprising – and genuinely shocking – if any of these were real career civil servants. Most of them are contractors on short term contracts and it is a fact that some government departments insist on taking them on through companies to avoid creating employment rights : the rest, one suspects, are people brought in from the private sector, who bring their limited companies with them. Such people will not, technically, be civil servants at all, and mostly owe their position to the absurd belief that the private sector is always better, an ideology Cameron shares with Tony Blair, who was responsible for most of the damage here in the first place.

The recommendation is that everyone taken on for more than six months should go on the payroll (not, you notice, that they should have IR35 status checks, though that would seem the correct way to proceed). It seems that some 40% have been in place for more than two years (though whether on single contracts or repeated short ones we do not know).

Much was made of the difficulty of breaking contracts, but surely all departments have to do is ask HMRC for an IR35 ruling. And if – as many of them may be – they are office holders, there is no question but that they ought to be on PAYE.

Of course, the added fuss about pension rights, sick leave and other employment rights is froth and nonsense, since they won’t have these if they operate through companies.

It’s not just a storm in a teacup, since if it is wrong for the private sector to fiddle about with employment status it is wrong (indeed, more wrong) for the public sector to do so, but it really ought to be presented as it is rather than as it is imagined to be.

Continued...

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Comments

Too right, Simon: Why don't PAC call for IR35 2 B retro-applied?    2 thanks

dstickl | | Permalink

Too right, Simon: Why don't PAC [Parliamentary House of Commons "Public Accounts [Select] Committee"] publicly call for IR35 to be applied retrospectively to these 2,000 workers (?passengers?), to start with?

Do we now have "Drivel Servants" in the place of "Civil Servants", to "advise" MPs, especially Cabinet Ministers?

Only 6 days left on this BBC2TV "Newsnight" programme iPlayer link:-

http://www.bbc.co.uk/iplayer/episode/b01h7mqm/Newsnight_02_05_2012/ 

... just watch the first fifteen minutes!   Will you notice an apparent ignorance of the "fiscal horror" words of "IR35" ?

Question 1: Why is there a general ignorance of IR35 on the Parliamentary House of Commons "Public Accounts [Select] Committee", because allegedly neither Margaret Hodge MP {Chair} nor [I think, and apologies if I'm mistaken here] Richard Bacon MP {member} IMHO mentioned an IR35 aspect? 

SUM UP: Question 2: Why not just apply the law as it currently stands to the government's 2,000?

johnjenkins's picture

Oh Oh Oh    3 thanks

johnjenkins | | Permalink

I'm so shocked about this revelation says Margaret Hodge to Danny Alexander. Isn't that like Mr Bank of England saying they should have done more. Pathetic and these people are running the show.

IR35

Ian Bee | | Permalink

Simon

I too was appalled at the level of ignorance shown on Newsnight (I wonder if it is the same for every subject, where I do assume a certain level of knowledge).

For all we know these companies are fully compliant IR35 and if not, HMRC now have a rich seam to mine following these revelations. But in any event compliance with IR35 is of no concern to the top contractor, as was made clear when the legislation was introduced. Is the Government now saying that responsibility for income tax when a ltd company is engaged should be pass to the contractor? 

The Government really should ...

Trevor Scott | | Permalink

.... think and then obtain advice before exercising their vocal cords.

I think they're going to look like idiots again, though an upshot is that a resolution to IR35 may come about.

 

Now, now

ThornyIssues | | Permalink

Ian Bee wrote:

Simon

I too was appalled at the level of ignorance shown on Newsnight (I wonder if it is the same for every subject, where I do assume a certain level of knowledge).

For all we know these companies are fully compliant IR35 and if not, HMRC now have a rich seam to mine following these revelations. But in any event compliance with IR35 is of no concern to the top contractor, as was made clear when the legislation was introduced. Is the Government now saying that responsibility for income tax when a ltd company is engaged should be pass to the contractor? 

Careful now, you have no idea how many are true freelancers and you seem to forget that a lot, if not most true freelancers are forced to incorporated because of S134 legislation introduced in 1999. The issue here is that there is no "right to be self-employed". If you want to be an employee, you enter into a contract of employment (a contract OF service) and thus, your employer is responsible for your tax affairs under PAYE, your pension, employment law rights, holiday pay, SMP etc, etc.

If on the other hand you wish to operate as a freelance, you enter into a contract FOR services and that should be possible at any level, no matter how long, no matter how many clients and under whatever business structure suits (SE, LtdCo, LLP etc).

Secondly, IR35 has not changed and the VICTIM TESTS proposed by HMRC do nothing to clarify the situation. If anything they attempt to put all freelancers in the high risk category and thus perpertuate the use of fear, uncertaintly and doubt (FUD) to extract as much (probably undue) tax as possible from uninformed taxpayers.

 

Status quo

ThornyIssues | | Permalink

dstickl wrote:

SUM UP: Question 2: Why not just apply the law as it currently stands to the government's 2,000?

Indeed and with all their contractual ducks in a row and with professional representation, they can simply elect to go to tribunal and have a better than 90% chance of not being IR35 caught.

I particularly enjoyed the

Edward Beale | | Permalink

I particularly enjoyed the part in the program where they worried about the additional "cost" (employers NI) to the government of all these people going onto the payroll.  Neither the expert or the journalist seemed to realise that this "extra" cost never left a government bank account.

Not only, but also

ThornyIssues | | Permalink

Edward Beale wrote:

I particularly enjoyed the part in the program where they worried about the additional "cost" (employers NI) to the government of all these people going onto the payroll.  Neither the expert or the journalist seemed to realise that this "extra" cost never left a government bank account.

It is not just ERNIC it is holday pay, SMP, pensions, employment rights and even redundancy. Why does Joe Public only see "tax avoidance". Freelancers don't pay as much tax, that is true but they don't get, or more importantly, expect, employment benefits. This needs to made abundantly clear.

 

BBC focus was on ErsNI not other employment costs

Edward Beale | | Permalink

ThornyIssues - I agree with all the extra employment costs, but this was not what the BBC were talking about.  They were talking about ErsNI and the rough numbers were solely an illustration of ErsNI.  If the BBC want to fulfill their public service broadcasting remit, they (and the "expert" they were talking to, whoever he was) should have known that ErsNI was a red herring, all of the extra costs relates to other employment rights/benefits.

@ThornyIssus:Will HMRC chase 2,000 IR35 cases, 'end client'=HMG?

dstickl | | Permalink

ThornyIssues wrote:

dstickl wrote:

SUM UP: Question 2: Why not just apply the [IR35] law as it currently stands to the government's 2,000?

Indeed and with all their contractual ducks in a row and with professional representation, they can simply elect to go to tribunal and have a better than 90% chance of not being IR35 caught.

Hi Thornyissues, Whilst it may be true that (in general) an alleged IR35 case at tribunal may historically have had a high chance of not being IR35 caught, I'm not yet convinced that this is the case of the "government 2,000" - I see the really tough HMG question as "Will HMRC have the courage to chase the alleged 2,000 HMG 'disguised employee' IR35 cases, where Mr Danny Alexander's alleged 'end client' is HMG, using un-repealed IR35 legislation passed by a previous government?".

As I wrote earlier, here’s an AWeb link:-

http://www.accountingweb.co.uk/article/health-department-apologises-ir35...

where you’ll see ...

Here is an extract from The Guardian “IR35 monies due to HMRC ‘cover up at and from the top’ story”, i.e. including the – in my opinion – “misconduct in public office”, corrupt and conspiratorial phrase of “because HMRC may use this to take forward IR35 cases with those NPWs”, for your easy reference:

QUOTE

Department of Health apologises over tax deals 'misunderstanding'

Exclusive: Andrew Lansley faces questions after leaked emails reveal at least 25 senior staff have salaries paid to companies

                                                Patrick Wintour, political editor

            guardian.co.uk, Wednesday 15 February 2012 21.52 GMT

<http://www.guardian.co.uk/politics/2012/feb/15/department-of-health-tax-...

Health secretary Andrew Lansley will be asked for a full explanation of the tax arrangements for senior Department of Health staff.   ...

It continued: "The department [of Health?] would probably want to avoid anything that implies its NPWs [non-payroll workers] are disguised employees reputationally, to avoid unnecessary employers' national insurance and because HMRC may use this to take forward IR35 cases with those NPWs."

The emails also discuss whether it would be possible to reply that an answer cannot be provided due to disproportionate cost.  ...

ENDQUOTE

... and as at least one HMG department seems to me to have previously wanted to cover up this alleged IR35 mess, these alleged "government 2,000" cases may never get chased by HMRC, which raises these SUM UP questions:

Q 1: Is there a double standard in the application of IR35 legislation, one "lax" standard for HMG "disguised employees" - and another for the rest?

Q 2: Since when was a "Un/Due Discrimination Act" passed? 

[& now 2 watch ITV/"The Sting" '73 film][punctuation since EDITED in daylight!]

Is this still going?

danbrown | | Permalink

No problem with the entire top deck of the Clapham Omnibus being peeved, but surely, going back to Ed Lester (who started all this), anyone here would have been mildly perturbed at talk of gross payments, then read a bit further, got to the (eventual) mention of his Service Company, muttered "Oh, IR35 then" and gracefully lobbed the article into the nearest bin...

 

HMRC has been a bit castigated for supposedly approving gross payments from HMG to Limited Companies. (I think. What was actually done is as murky and as speculated-upon as everything else, but even given the lack of Tax background in the upper echelons of HMRC, I'm sure they could have found a TO(HG) to (quite rightly) tell them that it was OK. Which it is.)

 

If Lester and his boys haven't been IR35-ing where appropriate, that's their problem. (The next  BBC story can be if the penalties were anything but concealed and extremely prompted.)

 

I'm only sorry that the real story wasn't about IR35 Rules being waived. That could have been "Precedents all round" and an OTS-issue hypodermic full of Domestos into IR35's unloved carotid.

 

 

   

@danbrown:Y the real story wasn't about IR35 Rules being waived?

dstickl | | Permalink

IMO (in my opinion) it was the BBC alleged high level abuse as flaunted by alleged Deputy Director-General John Birt's alleged 1991 company's accounts [e.g. for John Birt Productions Limited, etc] that triggered HMRC's desire for IR35, here's a link:-  

http://www.independent.co.uk/news/bbc-helps-its-chief-to-avoid-tax-exclusive-birts-salary-paid-to-his-private-company-1475816.html

AND IMO, one of the apparent "in jokes" of the 2nd May, 2012, BBC2TV Newsnight programme, was that "Paxo's" programme "guests" seemed to me to pussy foot around the matter of "Paxo's" alleged PSC alleged tax alleged arrangements - and hence danbrown's regret "that the real story wasn't about IR35 Rules being waived". 

Q1: Are some BBC TV programmes suffering from some self-interested self-censorship, perhaps? 

Q2: Is this an example of some of the "forces of stagnation" that GO spoke about at the FSB in early 2012?

Q3: Is the lesson of this partial hidden-ness (as compared with open-ness, and the flushing out of alleged scandals) that IR35 can only be properly dealt with in a marginalising 'salami slicing' type "discriminatory" approach, in which the proposed screening by the 12 business entity tests [set out in HMRC’s 47-page intermediaries legislation guidance note] could, if a "Contractor Age test" were to be added:  

(A) Cut out some of the undesirable abuses perpetrated by IR35 - such as catching OAPs (who have to work out of relative poverty) in its incomprehensible net of ever changing case law etc - while

(B) Allow IR35 to still catch gross misbehaviour, e.g. the "Friday-to-Monday" syndrome, etc?