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March 16, 2012 / politicsbitesize

Tax avoidance: not just reserved for tycoons

Nick Clegg’s leadership of the Liberal Democrats came under severe pressure at the weekend. At the party’s spring conference, which took place in Gateshead, a vote to call for party peers to oppose the health bill in the Lords was defeated by 314 to 270. This means that Liberal Democrat peers will not be asked to rebel against the third reading of the controversial Health and Social Care Bill, which is at best a disappointment and at worst the final nail in the coffin for our dear NHS. The Deputy Prime Minister did try to salvage his credibility, however, by announcing his plans for a ‘tycoon tax’, which he is trying to press into the budget due next week.

In his closing speech he stated: ‘We will call time on the tycoon tax dodgers and make sure everyone pays a fair level of tax … the sight of the wealthiest scheming to keep their tax bill down to the bare minimum is frankly disgraceful.’ What Nick Clegg is proposing is that wealthier tax payers should pay a minimum rate of around 20% on all of their earnings. The Treasury and the Business Secretary, Vince Cable, aren’t too convinced that it is a workable policy. Tax avoidance is a big issue and reducing it is high on the agenda in parliament, but it has come to light that it isn’t just a practice reserved for the rich.

The BBC’s File on 4 programme has discovered that several local councils up and down the country are, in effect, promoting tax avoidance. Fran Abrahams revealed that local council posts are filled with people who are not employed directly by the council itself. Her report shows that some positions within the council, such as CEOs, board members and Chief Executives of Housing Departments, are being paid by the council via private companies. This means that the office holder isn’t paying the full amount of PAYE because the money they receive is not paid to them as an ‘employee’ of the council. In other words, the money they are given is not being taxed as a normal wage should be. And, as HMRC legislation states, if you hold an office that continues no matter who is in that position at the time – such as CEO, a board member or chair of a board – then you are liable to PAYE, which means the local councils involved are clearly flouting the rules.

By using Freedom of Information legislation File on 4 asked councils throughout the UK how many permanent members of staff they had in posts who were being paid via private companies. It was revealed that Hackney are the worst offenders with 39 posts, Hammersmith and Fulham Council have 11, Lewisham has six, Craven District Council in North Yorkshire have eight, and Ashfield in Nottinghamshire and Edmundsbury in Suffolk have five each. From the responses received by the BBC it has been confirmed that 100 posts are filled with people not employed directly by the councils and who, therefore, avoiding paying the full amount of tax.

Margaret Hodge, chairman of the Commons Public Accounts Committee, said her committee would pursue this issue, adding: ‘This is a tax avoidance scheme which is totally wrong. When you are a public servant it’s not right you should be paid in a way that avoids tax. If someone sets up a scheme to avoid paying tax, that is income foregone to the public purse.’  She has urged HMRC to clamp down on this problem and is encouraging Danny Alexander in his review of tax avoidance within the civil service. The Chief Secretary to the Treasury launched a review into the use of tax avoidance schemes by public servants earlier last month when it came to the public’s attention that Mr Lester, Chief Executive of the Student Loans Company, was being paid via a private company. Tax avoidance, it would seem, is a part of the nature of working whether you are a public servant or a tycoon and it is time something was done to prevent it.

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