More than 2,000 senior public officials in the United Kingdom may have benefitted from a controversial pay deal scheme, which allowed them to lower their personal tax bills, said a report by the Financial Times on Wednesday.
The accused are all said to be earning more than £58,200 ($94,162) annually, and had received money “off payroll” by performing services for the government as private service companies or employment agencies, rather than as a government employee.
This meant that the recipients would be taxed at the corporation tax rate of 21 percent instead of the usual 50 percent in income tax – resulting in close to £30 million ($48.5 million) in losses to the U.K.’s tax receipts each year.
Chief Secretary of the Treasury Danny Alexander discovered the scale of the tax avoidance after conducting a review into civil service pay. Alexander had been prompted to do so after it emerged that the chief executive of the Student Loans Company Ed Lester had been paid this way, reducing his income tax and national insurance liabilities in the process.
“The sheer scale of off-payroll engagements across government, and the length and size of these contracts, suggests that the scope for artificial tax minimisation may be greater than previously understood,” said Alexander in a letter to U.K. chancellor George Osborne.
"Of more than 2,000 such people identified, 1,500 are paid more than £380 a day. At least 1,600 people have been working for their departments for more than six months. Of these, 1,200 have been working for in excess of a year. And 800 of them have been working for at least two years,” wrote Alexander, as quoted by the UK Press Association.
The implicated civil servants must now provide evidence that they are paying their full income tax amount within the next three months, or risk being sacked. Alexander added that the Treasury would now be seeking “strict rules” on the tax arrangements of public officials, so that such an incident will not happen again.
Margaret Hodge, chair of the public accounts committee, told BBC’s Newsnight: “I am completely shocked. This is endemic across the civil service . . . The public sector should be leading by example.”
“Danny Alexander has promised that our committee will receive a full report and we intend to interrogate vigorously the worst offenders. It does appear that he is taking the right steps to deal with this.”