Off-payroll contractors

A Government-wide review of how departments are complying with the new “off-payroll” rules has found that the overwhelming majority of contractors operating in the public sector are compliant. The results indicate that just 125 contractors working for Government bodies – 6% of the total number engaged – have failed to meet the Treasury’s demands, and will be passed on to HMRC for investigation.

The new rules around how contractors are engaged by the public sector were introduced last year in response to the unearthing of rampant abuse of Personal Service Companies in Whitehall. Chief Secretary to the Treasury Danny Alexander ordered an urgent review into the use of limited companies by senior civil servant and uncovered 2,400 individuals using Personal Service Companies to artificially reduce their tax bills. New rules were introduced making it mandatory for all senior civil servants to be on full employment contracts, and paid through Departmental payroll. Any contractor earning over £220 per day, or with a contractor of longer than six months, must provide “formal assurance” that their Income Tax and National Insurance obligations are being met.

The Treasury also announced two departments failed to bring senior staff onto payroll within six months and have received fines. The Department for Environment & Rural Affairs (DEFRA) has been fined £102,080, and the Department for Transport has been hit with a penalty of £398,500 for two separate breaches.

Danny Alexander said:

“The vast majority of off-payroll contracts are in place for legitimate reasons and these workers are playing an important role by 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.

“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.”

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