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New rules on limited company use by public sector workers

The controversial use of limited companies by some high profile public sector workers has resulted in new Government proposals to reduce the number of ‘off payroll’ assignments across all departments.

Following revelations that several senior public figures (most notably Ed Lester, the head of the Student Loans Company) were being remunerated via their own ‘personal service companies’ rather than the payroll, the Chief Secretary to the Treasury, Danny Alexander, commissioned a cross-department audit to establish just how widespread the practice had become in recent years.

The audit found that over 2,400 public sector workers were being paid ‘off payroll’ – typically via their own limited companies (albeit via recruitment agencies in 85% of cases). Of this number, 40% are believed to be IT contractors, and 70% are earning at least £400 per day.

These revelations were first leaked by investigative news site, Exaro, earlier this month, as we reported here on Company Bug at the time.

Clampdown on ‘off payroll’ remuneration

As a result of these findings, the Government has announced new guidelines to ensure that the majority of these individuals are no longer paid in this ‘unorthodox’ way:

  • The most senior public servants will no longer be allowed to be remunerated ‘off payroll’, except in vary exceptional circumstances.
  • All contractors working on assignments lasting 6 months or more, and earning £220 per day or more, must provide their departments with ‘formal assurance’ that they are meeting their ‘income tax and national insurance obligations’ (although the statement doesn’t explain exactly what these ‘obligations’ are in practice).
  • All Government departments are to be monitored to ensure that they comply with the new proposals.

The new measures are expected to be implemented over the next three months.

You can read the full review document here (PDF format).

New consultation on ‘controlling persons’ measures

The Treasury statement also announced the start of a consultation that all ‘controlling persons’ working via their own limited companies, but who had a controlling influence within an organisation (such as interim managers one presumes) should be taxed via the organisation in full – as if they were traditional employees.

The consultation document can be downloaded from the HMRC site here (PDF format).

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