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

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

Second evaluation of rules designed to ensure that those working as temporary government contractors are meeting their tax obligations, published today.

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The second evaluation of rules designed to ensure that those working as temporary government contractors are meeting their tax obligations was published today by the Chief Secretary to the Treasury Danny Alexander. It shows that 95% of government departments were broadly compliant in ensuring that their contractors provided satisfactory assurance that their tax affairs were in order. Fines are being imposed on two departments where the off-payroll guidance has not been correctly applied.

To ensure that the public sector demonstrated the highest standards of integrity, the Treasury established new tighter rules on off-payroll appointments in May 2012, to make government departments responsible for ensuring that their temporary off-payroll workers were meeting their tax obligations, and that board members and senior officials with significant financial responsibility are not off-payroll except in exceptional circumstances, and then only for up to six months.

Of the 2,505 people that departments sought assurance of their tax affairs from, 4% (94 people) were asked to leave because they were unable to provide evidence that they were meeting their tax obligations.

While the majority of all departments have followed the guidance, sanctions will be imposed because of two breaches. The Ministry of Defence will be fined £1m for failing to seek assurance from a number of workers on their tax arrangements due to administrative error in 2012-13. The Department of Health will be sanctioned £470,740 for two breaches at NHS England, where two board members were off-payroll for over a year. In both cases the individuals provided the necessary assurance to NHS England regarding their tax arrangements.

These fines will be donated to relevant charities, with £1m earmarked for military charities and £470,740 for health charities.

The Treasury’s review has also found that the Department for Work and Pensions (DWP) made errors in its reporting of the policy, but the department has since corrected its accounts and is not being fined as it did not breach the guidance. The Permanent Secretary to the Treasury has written to DWP requiring it to demonstrate that all further reporting will be in full compliance with the guidance. The Government Internal Audit Agency is to carry out an independent audit of the implementation of the guidance at UK Export Finance, as the review identified some concerns which require further investigation.

Chief Secretary to the Treasury Danny Alexander said:

I introduced tough new rules to tackle tax avoidance by off-payroll workers in the public sector in 2012, and it’s heartening that the vast majority of departments are compliant in ensuring that all their contractors are paying the correct amount of tax.

The Treasury review for 2013-14 shows that where senior or higher paid workers have been unable to provide assurance that they are paying the right tax, their contracts have been terminated and their details passed to HMRC.

While 95% of government departments are broadly following the new rules, the Ministry of Defence and an arm’s length body of the Department of Health have not been able to fully satisfy the strict rules. I am imposing fines on these departments as a result.

I do not believe that less funding should be available to the users of the health service or our armed forces as a result of these mistakes, which is why I’m donating the proceeds of these fines to relevant charities. £1m will go to military charities who do so much to support our serving soldiers, veterans and their families, whilst £470,740 will support charitable health initiatives across the country.

Notwithstanding these issues, the results of this review suggest that 95% of central government departments are operating the rules effectively.

The Treasury will continue to monitor compliance with the HMT guidelines and will conduct a similar review for the 2014-15 financial year.

Published 5 March 2015