The mere suggestion of tax avoidance is enough to provoke outrage in the current climate even where there is actually no avoidance, according to a leading firm of tax lawyers. But it would be "hugely damaging", said McGrigors, if it emerged that HMRC sanctioned a "sweetheart deal" to allow the head of the state-owned Student Loans Company to avoid tax and national insurance contributions.
The “IR35” rules to counter avoidance by means of disguised employment have been in place since 2000, but it is not known whether the rules have been applied to Ed Lester’s pay arrangements.
The Chief Secretary to the Treasury told MPs on 2 February that those arrangements – described by Liam Burns, President of the National Union of Students, as “a scam" – would be unwound. Danny Alexander ordered a review of top civil servants’ tax affairs after Exaro News and the BBC’s Newsnight reported that HMRC had authorised the SLC to make gross payments to Lester's personal service company via a recruitment firm.
Burns told Newsnight that he was not calling the arrangement illegal, but “the irony in the fact that the person that collects our [tuition] fees is purposely trying to avoid taxation is a bit of a kick in the teeth”.
Nick Brown MP
The SLC said it “followed all government guidelines” on Lester’s appointment and remuneration. Scotland's Sunday Herald reported yesterday that three other members of the SLC board were paid through private companies instead of the staff payroll.
McGrigors Director Heather Self said on 3 February that “the unanswered question” was “whether HMRC agreed to a so-called ‘sweetheart’ deal” for Lester.
“If that is the case, it would be hugely damaging given the criticism HMRC has already faced about alleged ‘sweetheart’ deals with large companies. In order to prevent further speculation and to nail the issue, HMRC should confirm today that no such deal was done,” she said.
“The review needs to determine whether civil servants have been paying tax at a lower rate and, if that is the case, whether they are genuinely self-employed. If civil servants are not genuinely self-employed, then they should be taxed as employees. If Mr Lester is actually an employee, whether he is remunerated via his own personal service company or not is largely an irrelevance. The rules to stop this kind of avoidance – known as IR35 – have existed for over 10 years, meaning that anything paid to his company would be deemed as salary anyway.”
Self said the issue “may be that of public perception rather than any genuine wrongdoing”. In the current climate of public spending cuts and the fairness agenda, she added, “the faintest whiff of tax avoidance is enough to provoke outrage, even if no tax has actually been avoided”.
Exaro News reported on 1 February that Lester was a director of SLC but was working “as a consultant rather than an employee” of the company, and that under a “concession” granted by HMRC the SLC paid his remuneration to a private company.
The SLC is overseen by the Department for Business, Innovation and Skills (BIS) where, according to Exaro, a senior civil servant described the arrangements as “tax efficient” for Lester. Exaro reported that:
Several MPs, debating an “urgent question” tabled by Labour MP Nick Brown on 2 February, asked Danny Alexander to say which government minister had signed the “tax deal" and when.
Alexander said a number of departments were involved and referred MPs to “a great deal of information” released in response to a freedom of information request.
Newsnight reported later on 2 February that it had seen correspondence in which the SLC told Willetts that the deal was “subject to ratification with HMRC on the extension of their current concession". Willetts replied, telling the SLC that “terms of the appointment” had been agreed “by the Chief Secretary to the Treasury”.
While HM Treasury was insisting that “Danny Alexander was told nothing about tax", the BIS said the terms and conditions of the appointment were approved "across government".
Vince Cable, the Business Secretary, defended the arrangements. The Times, under the headline “Ministers at odds over tax deal for student loans chief”, quoted Cable as saying that “the arrangements under which the negotiations took place involved substantial value for money for the taxpayer, a tax cut by the individual, and we will pursue matters of public concern on the tax issues”.
Nick Brown said the suggestion that the arrangement had saved the government money was "absurd". Writing in The Guardian, Brown asked: "Why then should any public servant have to pay taxes? Should the head of HMRC have to pay income tax, or would it be more cost-effective to let her off?"
He added: "At a time when the public finances are so tight that benefits are being cut for cancer patients and the disabled, Alexander is giving the go-ahead for well-paid public servants to avoid paying income tax. As well as being morally indefensible, the arrangement is corrosive for public service and public servants.
“Alexander must answer questions urgently about how many other deals of this kind he has let through and what estimate he has of the total cost of these deals to the public purse. What didn't he know, and when didn't he know it?"
The mere suggestion of tax avoidance is enough to provoke outrage in the current climate even where there is actually no avoidance, according to a leading firm of tax lawyers. But it would be "hugely damaging", said McGrigors, if it emerged that HMRC sanctioned a "sweetheart deal" to allow the head of the state-owned Student Loans Company to avoid tax and national insurance contributions.
The “IR35” rules to counter avoidance by means of disguised employment have been in place since 2000, but it is not known whether the rules have been applied to Ed Lester’s pay arrangements.
The Chief Secretary to the Treasury told MPs on 2 February that those arrangements – described by Liam Burns, President of the National Union of Students, as “a scam" – would be unwound. Danny Alexander ordered a review of top civil servants’ tax affairs after Exaro News and the BBC’s Newsnight reported that HMRC had authorised the SLC to make gross payments to Lester's personal service company via a recruitment firm.
Burns told Newsnight that he was not calling the arrangement illegal, but “the irony in the fact that the person that collects our [tuition] fees is purposely trying to avoid taxation is a bit of a kick in the teeth”.
Nick Brown MP
The SLC said it “followed all government guidelines” on Lester’s appointment and remuneration. Scotland's Sunday Herald reported yesterday that three other members of the SLC board were paid through private companies instead of the staff payroll.
McGrigors Director Heather Self said on 3 February that “the unanswered question” was “whether HMRC agreed to a so-called ‘sweetheart’ deal” for Lester.
“If that is the case, it would be hugely damaging given the criticism HMRC has already faced about alleged ‘sweetheart’ deals with large companies. In order to prevent further speculation and to nail the issue, HMRC should confirm today that no such deal was done,” she said.
“The review needs to determine whether civil servants have been paying tax at a lower rate and, if that is the case, whether they are genuinely self-employed. If civil servants are not genuinely self-employed, then they should be taxed as employees. If Mr Lester is actually an employee, whether he is remunerated via his own personal service company or not is largely an irrelevance. The rules to stop this kind of avoidance – known as IR35 – have existed for over 10 years, meaning that anything paid to his company would be deemed as salary anyway.”
Self said the issue “may be that of public perception rather than any genuine wrongdoing”. In the current climate of public spending cuts and the fairness agenda, she added, “the faintest whiff of tax avoidance is enough to provoke outrage, even if no tax has actually been avoided”.
Exaro News reported on 1 February that Lester was a director of SLC but was working “as a consultant rather than an employee” of the company, and that under a “concession” granted by HMRC the SLC paid his remuneration to a private company.
The SLC is overseen by the Department for Business, Innovation and Skills (BIS) where, according to Exaro, a senior civil servant described the arrangements as “tax efficient” for Lester. Exaro reported that:
Several MPs, debating an “urgent question” tabled by Labour MP Nick Brown on 2 February, asked Danny Alexander to say which government minister had signed the “tax deal" and when.
Alexander said a number of departments were involved and referred MPs to “a great deal of information” released in response to a freedom of information request.
Newsnight reported later on 2 February that it had seen correspondence in which the SLC told Willetts that the deal was “subject to ratification with HMRC on the extension of their current concession". Willetts replied, telling the SLC that “terms of the appointment” had been agreed “by the Chief Secretary to the Treasury”.
While HM Treasury was insisting that “Danny Alexander was told nothing about tax", the BIS said the terms and conditions of the appointment were approved "across government".
Vince Cable, the Business Secretary, defended the arrangements. The Times, under the headline “Ministers at odds over tax deal for student loans chief”, quoted Cable as saying that “the arrangements under which the negotiations took place involved substantial value for money for the taxpayer, a tax cut by the individual, and we will pursue matters of public concern on the tax issues”.
Nick Brown said the suggestion that the arrangement had saved the government money was "absurd". Writing in The Guardian, Brown asked: "Why then should any public servant have to pay taxes? Should the head of HMRC have to pay income tax, or would it be more cost-effective to let her off?"
He added: "At a time when the public finances are so tight that benefits are being cut for cancer patients and the disabled, Alexander is giving the go-ahead for well-paid public servants to avoid paying income tax. As well as being morally indefensible, the arrangement is corrosive for public service and public servants.
“Alexander must answer questions urgently about how many other deals of this kind he has let through and what estimate he has of the total cost of these deals to the public purse. What didn't he know, and when didn't he know it?"
