Whitehall and BBC Tax Avoidance Scheme Rapped

Too many BBC stars have been paid in murky off-payroll deals but the true number who have benefited from what amounts to an endorsement of tax avoidance was unknown, according to the Public Accounts Committee (PAC).

More than 13,000 performers at the BBC were paid through special accounts set up by middleman companies, from a total of 25,000 such contracts at the broadcaster.

More than 2,400 Whitehall employees had similar arrangements, according to the PAC report.

Under the system the government pays salaries gross - without deducting tax first - to the contractor's own personal service company. The contractor draws their salary from that company, thus reducing the tax they are eligible to pay and their national insurance contribution.

That meant that high earners, whose salaries came out of the public purse, potentially paid less tax.

Using off-payroll practices posed a threat to public confidence, warned the PAC.

"The public sector must maintain the highest standards of propriety in its employment practices if it is to show leadership in the fight against tax avoidance," said the report.

"It must therefore avoid the practice of using off-payroll arrangements for staff who should be on the payroll, because it fails to meet the standards expected of public officials."

Similar practices may be widespread in the public sector, MPs were told, because the Treasury did not probe local government or the NHS.

The number of tax avoidance probes by the tax office fell to just 23 in 2011 from more than 1,000 10 years earlier.

The Taxpayers' Alliance urged the coalition to ensure that top public figures and officials paid their fair share of tax.

"The sheer scale of the off-payroll arrangements across government and the BBC is astonishing," a spokesman said.

The government had to clamp down on these arrangements in the public sector, but also enact wholesale reform of our tax system.

"We need a system where individuals cannot simply have their salary paid to a private company and be taxed at a different rate,2 the spokesman continued.

"Civil servants doing deals to avoid tax undermines the public's faith in our tax system, especially when it is most often done by those earning significant sums at taxpayers' expense.

"Many taxpayers will be left with the impression that while they are handing over ever increasing amounts to the taxman, senior staff in their hospitals, councils and public bodies aren't doing the same."