Suspicions of IR35 evasion grow in Whitehall circles

The Chief Secretary to the Treasury, Danny Alexander, appears to have poured a little petrol over the flames of the Ed Lester debacle: the review he ordered into how many civil servants are being paid through personal service companies has just confirmed that they number 100 – four times higher than previously identified.

The arrangement has led to charges of tax avoidance and IR35 dodging. The news that the figure is much higher than previously thought is likely to fuel these suspicions – especially as many of the departments concerned are remaining tight-lipped about the matter. As reported in the Financial Times, the UK tax authority has just announced an expansion in its staff to launch an investigation into possible breaches of IR35 in both the private and the public sector.

Contractors working through umbrella companies will be safe, of course, but, as the PCG warned recently, fuelling a “witch-hunt” mentality amongst investigators is hardly likely to be conducive to contractors working through legitimate limited companies.

John Whiting, a leading tax expert, said that it wasn’t easy to determine whether someone was using a limited company simply for tax avoidance purposes. He said: “It doesn’t apply to someone doing a day here and a day there and working for several clients. But where you have someone working half-time for one organisation and for say six months, or a couple of years, they’re bang to rights.”

It has emerged that several of the people paid in this way in the health department had been full-time staff who had worked in their roles for many years. Department officials were insistent that they had all been hired as contactors, however.