News story

First evaluation of tax arrangements for off-payroll contracts in the public sector published

The evaluation follows new rules designed to ensure ‘off-payroll’ contractors pay proper tax.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government


The first evaluation of how new rules designed to ensure that those working as contractors or ‘off-payroll’ pay the proper tax was published today by the Chief Secretary to the Treasury Danny Alexander. It shows that in 94% of cases (1,815) government contractors provided satisfactory assurance that their tax affairs were in order.

In the remaining 6% of cases (125), former government contractors have been unable to satisfactorily explain their tax affairs, leading to the contracting department passing their details on to HMRC for investigation.

The review has also confirmed that the overwhelming majority of public bodies are following the guidance on senior level appointments. Two departments have, however, been fined for failing to ensure that senior appointments are on-payroll within six months of appointment.

The Department for Environment & Rural Affairs (DEFRA) have received a fine of £102,080 for a breach at the Animal Health and Veterinary Laboratories Agency (AHVLA), an arm’s length agency. The individual was brought on to payroll more than six months after being engaged.

The Department for Transport (DfT) has received a fine of £398,500 in relation to two senior appointments at the Directly Operated Railway. These two officials were also off-payroll for more than six months, but they have now all been brought on to payroll.

Chief Secretary to the Treasury Danny Alexander said:

The vast majority of off-payroll contracts are in place for legitimate reasons and these workers are playing an important role by satisfying short term needs for specialist advice and services.

However, it is right that the public sector sets the highest standards in terms of its tax arrangements and that departments continue to assure themselves that all their workers are paying their fair share of tax.

I am pleased that this guidance is working and that compliance has been so high. The minority of cases which do not appear to be consistent with the guidance have been passed on to HMRC who will now investigate these.

The government remains committed to ensuring that the public sector demonstrates the highest standards of integrity and that public sector employers are able to assure themselves that their senior and highly paid staff are meeting their tax obligations.

It is also important that these rules are complied with in the wider public sector. The Chief Secretary has therefore asked the Secretary of State for Health to conduct a full investigation into all senior off-payroll NHS appointments to ensure that all employers are taking adequate action to prevent possible tax avoidance.

Each department will continue to be responsible for seeking assurance on the tax arrangements of the off-payroll appointees in the department and arm’s length bodies, and judging whether the evidence presented is satisfactory to demonstrate that the appointee is meeting their tax obligations.

The Treasury will continue to monitor compliance with the guidelines and conduct a similar review for the 2013-14 financial year.

Published 11 March 2014