The spectre of a “contractor witch hunt” reappeared on Friday as a Department of Health investigation found around 2,400 senior staff – including one hospital Chief Executive – were still receiving their pay through personal service companies, despite strict new rules put in place in 2012 to curb the use of limited companies in the public sector. Before the new rules the use of limited companies as tax avoidance vehicles in Whitehall was rampant – Student Loans Company Chief Executive Ed Lester avoided around £42,000 in tax by using a personal service company despite his top-level position within the organisation.
Under the new regime, put in place by Chief Secretary to the Treasury Danny Alexander, all civil servants earning an annual salary of over £58,200 for six months or more must be on payroll, as must all senior staff members. On-payroll staff will have Income Tax and National Insurance contribution deducted at source, and so will have higher tax payments than a contractor.
However PCG, the membership association for the UK’s freelancers and contractors, has sought to quell criticisms, pointing out that independent professionals’ tax contributions aren’t as low as media reports have made out. Chris Bryce, the organisation’s CEO, said:
“As a business, Personal Service Companies pay corporation tax, which is set at 20 per cent. However, when the individual running that company draws their income down they are subject to further tax, just like any employee or shareholder would be.
“To suggest Personal Service Companies enjoy preferential treatment over any other business when it comes to paying their fair share of tax is quite frankly, rubbish.”
He also spoke of the need for a flexible workforce within the NHS, pointing out that applying working rules arbitrarily risked putting large-scale projects in danger.
“To suggest every person operating under a Personal Service Company for more than six months is doing so illegitimately shows a fundamental lack of understanding of how projects are delivered to large organisations.
“The NHS is a huge and complex organisation and delivering important projects, on which lives depend, takes time. Often much longer than the arbitrary limit of six months I have seen bandied about in the media.”
Photo by Benjamin Ellis