More civil servants services companies

Here\’s where the earlier denial that anyone got paid through a services company went off the rails:

She said: \”We can confirm that no civil servant who is an employee of the Department of Health is paid in this way. To this extent it was certainly not our intention to mislead anyone involved.

Well of course not. For if they\’re paid through a services company then they\’re not an employee, are they? They\’re a contractor.

And they\’re still not getting the tax implications either.

The arrangements would enable those involved to save thousands of pounds a year in income tax and National Insurance contributions because they would be taxed at the corporation tax rate of 21 per cent.

That\’s only stage one. When they pay themselves out of the company they either pay income tax and NI just as normal or they take it out as dividends and end up paying income tax just as normal. It\’s national insurance that this arrangement helps with, not income tax as such.

11 comments on “More civil servants services companies

  1. How long has this been going on?

    Tim adds: A number of years it appears. Nopt something new with hte Coalition that is. I have a feeling that the story might die down when that becomes apparent.

  2. Do these contracts fall foul of IR35 rules? If they do, the remedy is already in HMRC’s hands and they should have sorted this out long ago. If not, then paying these contractors through their limited companies is a legal and legitimate arrangement and the “tax evasion shock horror” crowd should shut up.

    (I hate IR35, by the way).

  3. When I worked in this way my experience was the gains on NI were lost though having to have an accountant. Of course, I wasn’t on 273k.

  4. Frances Coppola, I can’t see how it doesn’t come under the hated IR35, but I would not be surprised in the slightest that HM Government doesn’t enforce IR35 on it’s own contractors.

  5. Roue le Jour

    Quite so. In which case the real villain of the piece is Murphy’s beloved HMRC. Again.

  6. I’ve seen plenty of “contractors” working in the same job in the same government office for years at a time, in some cases longer than their “permanent” counterparts. I’ve asked about IR35, apparently the Revenue’s checks are sufficiently rare that it’s worth the gamble.

    Tim, you’ve missed another nice little earner: the Flat Rate VAT scheme. Let’s say you invoice your client for £100,000 + 20% VAT = £120,000. Under the flat rate scheme, you would forward no more than 14.5% of this to HMRC, or £17,400. So every year you’re earning an extra £2,600 or 2.6%. Not a fortune on its own, but all these little loopholes quickly add up.

    Most contractors also save a fair few pennies by charging travel expenses to the company: either car mileage or train season tickets. With a typical season ticket in the home counties pushing the £5,000 barrier, saving 53% (higher rate tax + employers’ NI) is quite appealing. Again, every little helps.

  7. @Frances Coppola:

    “Do these contracts fall foul of IR35 rules? If they do, the remedy is already in HMRC’s hands”

    Unfortunately, HMRC’s record on winning IR35 cases is about 1 case won per 300 lost, primarily due to continued and ongoing support for contractors through the PCG (Professional Contractors Group).

    Several years ago when they were still actively attempting to enforce IR35 it was reckoned that they had to spend £1.35 for every pound collected under IR35.

    The reality is that IR35 is a big stick that is wielded by HMRC but never used. Those who accept HMRC’s viewpoint pay what is necessary under IR35 and those who do not either do not get investigated or if they do then the IR35 aspect gets dropped as soon as HMRC gets word that the contractor has brought in legal assistance from the PCG heavies (Accountax, QDos, etc).

    For those who are smart enough, prepared with correctly worded contracts, armed with tax investigation insurance and have a health disregard for HMRC ‘opinion’ (which is usually that you should pay more tax, interest and penalties), then IR35 is nothing to be worried about.

  8. John Galt

    Or, of course, because the majority of contractors are legitimate small businesses that shouldn’t even be investigated, let alone prosecuted under IR35. Which is why I hate IR35. It’s like using a shotgun to shoot one bird in a flock. You upset lots of people and the one you really want gets away.

  9. Does rather put an iceberg sized hole in the Murph’s already wallowing ‘HMS Courageous State’ doesn’t it? If the State doesn’t much like the idea of paying taxes & lets employees use tax fiddles which ultimately serve to reduce its own wage bills it’s not so much a proud battleship as a smugglers barque.

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