Off-payroll arrangements in the public sector : twelfth report of session 2012-13, report, together with formal minutes, oral and written evidence

In May 2012 HM Treasury published its report on the use of off-payroll arrangements in central government ("Review of the tax arrangements of public sector appointees", Cm. 8350, ISBN 9780101835022). This showed that over 2,400 staff, each earning more than GBP58,200 a year, were being paid 'off-payroll' - a practice which generates suspicions of complicity in tax avoidance and which fails to meet the standards expected of public officials.

The review's recommendations should go some way to reducing the prevalence of the practice, yet the scope of the review was limited in scope to central government and did not cover other public services, like Local Government, the NHS and the BBC.

Some doubts about the Treasury's proposals remain. The Review stated that off-payroll arrangements can be used in 'exceptional circumstances' but does not clarify what these exceptional circumstances are.

It also recommended that departments seek assurance that those staff who remain off-payroll are paying the appropriate amount of tax, but did not specify how departments could or should do this. Ultimately, whether those paid off-payroll are paying the right amount of tax is dependent on HM Revenue & Customs properly enforcing tax rules to ensure employees pay tax as employees.

However, HM Revenue & Customs has progressively reduced its enforcement of the legislation designed to eliminate the avoidance of tax and National Insurance Contributions through the use of intermediaries, such as personal service companies, putting at risk any deterrent effect the rules might have on tax avoidance