Danny Alexander has ordered a review of the tax affairs of top civil servants after BBC Newsnight found that the head of the Student Loans Company (SLC) received his £182,000 salary without deductions for tax or National Insurance.
A Freedom of Information (FOI) request by Exaro News journalist David Hencke revealed that Lester's pay package was paid gross to his private service company.
The deal was signed off by Universities Minister David Willetts and it was passed to the chief secretary to the Treasury, Danny Alexander, for approval because his salary was above the Prime Minister's pay.
Alexander told Newsnight that he has now ordered an urgent inquiry across all government departments to find out how widespread this practice has been.
In spite of a government pledge to improve HMRC’s powers to stop such avoidance, HMRC appears to have agreed the arrangement when Lester was engaged on a temporary contract, and then again when he was taken on full-time, saving him an estimated £40,000 a year from his tax bill.
Lester declined to answer detailed questions about the arrangement and the SLC has claimed it "followed all government guidelines" on remuneration.
AccountingWEB members were quick to raise the IR35 spectre and found it was at the heart of this case, with dstickl asking “did Lester declare he was caught by IR35 as a ‘disguised employee’.” He added it would seem that IR35 is not being properly policed by HMRC when clear cases of employment income paid gross come to their attention.