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The row started several months ago when it was revealed that Chairman of the Students Loan Company, Ed Lester, received his remuneration via a limited company which was established, it was alleged, for tax efficient purposes. As soon as this was made known publicly, he changed his status.
As a result, the Government promised a full investigation into the scale of the 'abuse' and also promised in the Budget to bring forward legislation to tax at source anyone who was integral to an organisation.
Meanwhile, freelancer trade groups pleaded with the Government and media not to tarnish the reputation of 'genuine contractors' alongside these public servants.
The latest episode in this on-going saga has been a leaked letter from Treasury Secretary Danny Alexander to the Chancellor which has seen by BBC's Newsnight.
Mr Alexander is reported to be shocked by 'the sheer scale of the off-payroll' deals.
Newsnight said that Mr Alexander is recommending that anyone paid more than about £58,000 should not be able to use this 'loophole' to avoid paying tax. Departmental 'board members and senior officials' should be compelled to become staff, he argues, as should anyone engaged for more than six months on more than £220 a day. And he wants it to happen within three months.
But,it has been reported, overturning the legally agreed pay deals of thousands of public sector workers could represent significant challenges.
Babies and bath water
Freelancer groups rallied to urge caution and not to 'knee-jerk' against freelancers in general in any clampdown against this perceived abuse.
Stuart Davis, Chairman of the Freelancer and Contractor Services Association (FCSA) said: "There is nothing wrong or inappropriate for any employer, including the Government to engage contractors at any level of the civil service, if done properly, for the right reasons and where those concerned pay appropriate taxes. We would like to remind the Government and those who are criticising these employment arrangements, that freelance contracting work is undertaken by thousands of workers up and down the UK and is a legitimate and valuable way of working that benefits both employers and contractors.
"Engaging contractors gives the employer, in this case the Government, considerable flexibility to hire workers as and when they are needed. It also means that the employer is not responsible for pension provision, paid holiday leave nor other associated benefits. A contractor or freelancer relinquishes these benefits, as well as the security of a salaried full time position in favour of flexibility. It is this flexible movement of people to go where and when their expertise is needed that boosts the competitive elements of the UK economy, which are recognised as necessary for recovery and growth. The key issue is compliance and all stakeholders in the supply chain are responsible for engaging correctly and appropriately."
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John Brazier, MD of PCG, said: “We should ensure this latest scrutiny does not create a knee-jerk response which causes an anti-business public sector that would cost jobs and growth in the economy. Disguised employment and tax evasion should be investigated and stopped; but genuine freelance contractors should not be penalised in the rush to 'do something.' Genuine contractors contribute greatly to the economy, providing value for money to the taxpayer, and essential skills and services to the public sector.
“By introducing rushed legislation with ill-thought-out timescales, and failing to differentiate between those who abuse the tax legislation and the vast majority who operate legitimately, there is a danger the Government will burden the taxpayer with a massive employment costs bill or, worse still, rob the public sector of a great pool of talent. Amidst this debate we should reflect on the number of Government departments which rely on the flexibility and skills of freelancers with a specific talent that can be used where and, importantly, when they are needed."
IR35
Shout99 asks: Meanwhile, in another part of the forest, there is a piece of legisalation called IR35 which was introduced specifically to ensure that people operating in this manner as 'disguised employees' paid their 'fair share of tax'.
Why doesn't the Government and HMRC just use it to clamp down on such practices rather than talk about introducing new legislation and making new recommendations about pay thresholds etc?
Rightly or wrongly, this is what IR35 was intended to stop. Instead it has hit many marginal cases - as the court results have shown. These seem clear cut - or is there a recognition that IR35 is not fit for purpose when it comes to dealing with Whitehall's own?
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Susie Hughes © Shout99 2012
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