Crackdown on civil service tax avoiders

More than 2,400 people were employed 'off-payroll', allowing them to reduce their tax bill

The Government is to launch a crackdown on high-earning public sector workers who are able to avoid tax by being paid through private companies.

The Treasury said it had identified more than 2,400 people employed by Government departments "off-payroll" – potentially allowing them to significantly reduce their tax bill.

The Chief Secretary to the Treasury, Danny Alexander, said 40 per cent of cases went back two years or more and some as far as 10 years. In 70 per cent of cases, people had been earning more than £400 per day.

The review was commissioned after it was revealed that Ed Lester, the head of the Student Loans Company, had been paid via a company without tax being deducted, saving him tens of thousands of pounds. The deal had been sanctioned by both the Department of Business and the Treasury.

Yesterday, Mr Alexander said new rules would ensure that senior Government staff must be on the payroll unless there were exceptional temporary circumstances. Departments will also have to seek formal assurance from contractors, where they are used, that they are paying full income tax and national insurance, and if assurances cannot be given, contracts would be terminated. He said that since January, 350 contracts using off-payroll measures have been ended.

Mr Alexander added that the Government would consult on a new law to require people controlling an organisation to be on its payroll. "We all have to pay our fair share to help pay off the deficit," he said. "It's clear that off-payroll engagement without sufficient transparency has been endemic in the public sector for too many years."

Mr Alexander said the review had looked at all Government departments, their arms length bodies, and the boards of NHS trusts for employees earning more than £58,200 per year. However it had not sought to identify tax avoidance but only off-payroll contracts – he said these were "opaque" and tax avoidance could have taken place. He said most cases it had found were technical specialists – with 40 per cent made up of IT staff. In 10 per cent of cases, money was paid directly to a personal service company, 85 per cent via an intermediary such as an employment agency, with the remaining 5 per cent being self-employed.

The shadow Chief Secretary, Rachel Reeves, called for details of which ministers agreed the arrangements. She also called for transparency about the tax arrangements of bankers in publicly owned lenders.