The public sector’s troubles with Personal Service Companies don’t appear to be over yet, as it was revealed last week by health watchdog Monitor that 86 executives working for 21 NHS Trusts have failed to comply with the new “off-payroll” rules imposed in 2012. The Treasury is now calling on the NHS Trusts employing these individuals to hand their names over to HMRC to face a possible IR35 investigation.

The new rules for public sector workers were put in place following an investigation that revealed Student Loans Company Chief Executive Ed Lester, among others, was funnelling his pay package through a limited company, resulting in tax savings of around £42,000. The arrangement was in obvious contravention of IR35 – which was established precisely to stamp out such “false self-employment” arrangements. Following the revelations, a full-scale enquiry was launched and some 2,400 senior civil servants were found to be using Personal Service Companies to minimise their tax bills when they should have been paid as permanent employees.

Chief Secretary to the Treasury Danny Alexander announced new rules to clamp down on the abuse of Personal Service Companies in public bodies in May 2012, which included a clause mandating that any public sector worker earning over £58,200 who receives their pay through a limited company must provide assurances that they are meeting their tax obligations. The 86 NHS workers identified last week have failed to provide these assurances.

The probe by Monitor also found that some 47 senior executives were still operating through Personal Service Companies, apparently in breach of the 2012 rules, which stated that all “controlling persons” – those in management or board-level positions – must be on departmental payroll.

Danny Alexander told the Telegraph, who first reported the story:

“It’s right that those who work in the public sector uphold the highest standards when it comes to their tax affairs.

“The rules I brought in two years ago make clear that where people have failed to provide satisfactory assurance of their tax affairs, their details must be passed to HMRC.”

The workers involved now face the prospect of a lengthy tax investigation and, if found guilty, the repayment of all avoided tax and possible additional penalties.

Photo by Joe Flintham