Head of student loans - tax scam?
Discussion
I read this blog which states the following regarding the chief exec of the Student Loans Company (SLC):
Is this correct? I'm not stating either way (limited knowledge from contracting years ago), I just wanted to know how it would be seen by the PH Finance Bods.
blog said:
Documents released by the SLC and the Department of Business,Innovation and Skills reveal that Mr Lester, chief executive, pays no tax or national insurance at source but instead the SLC pay a consulting firm called Penna who pass the gross cash to a personal service company run by Mr Lester and a partner. This arrangement was approved by HM Revenue and Customs and the deal was signed off by David Willetts, the universities minister, and Danny Alexander, chief secretary to the Treasury.
My understanding was that under IR35 this was not permitted if he performs the same duties as an employee (search for him and he's described as Chief Exec). Is this correct? I'm not stating either way (limited knowledge from contracting years ago), I just wanted to know how it would be seen by the PH Finance Bods.
It's perfectly legeal. IR35 would only be an issue if he takes money out of the service company via dividends. If he pays himself a salary and limited expenses (I think 5% of turnover + travelling expenses) but no dividends that's fine.
It's also perfectly possible for a service company to be outside IR35 of course.
It's also perfectly possible for a service company to be outside IR35 of course.
IR35 is not about banning or preventing. It is just a method of taxing transacations. Legally there is nothing wrong with someone operating on this basis i.e. they are paid through their own limited company rather than directly as an employee/director. If IR35 does apply, as it should in this instance, then the company will have to pay PAYE and NI using the recognised IR35 calculations.
More important in this case is whether the CEO of a civil service department should operate and run his department in this type of commercial relationship. If I was an employee of teh student loan organisation, I would take a very dim view that my boss who dicatates policy and staff matters, is himself not truly part of the organisation of which he is in charge.
It's a bit like saying that the captain of a ship isn't part of the crew - and is outside of the normal rules and regulations that govern the behaviour of the crew.
Many years ago, the then head of the BBC, John Burt, was doing just this - only back then IR35 didn't exist and he was able to exploit his dividend position very effectively.
More important in this case is whether the CEO of a civil service department should operate and run his department in this type of commercial relationship. If I was an employee of teh student loan organisation, I would take a very dim view that my boss who dicatates policy and staff matters, is himself not truly part of the organisation of which he is in charge.
It's a bit like saying that the captain of a ship isn't part of the crew - and is outside of the normal rules and regulations that govern the behaviour of the crew.
Many years ago, the then head of the BBC, John Burt, was doing just this - only back then IR35 didn't exist and he was able to exploit his dividend position very effectively.
I think it's what they call in the trade "Interim Management Consultancy". I assume that he'll have 2 or 3 similar positions, plus perhaps a couple of (dozen) None Executive Directorships. There are 10,000's of freelancers being paid in a similar way.
Why do you think Jeremy Clarkson has a house on the Island of Mann ? So that his company, that the BBC pay for his services, can pay silly small amounts of tax. 10% max personal tax IIRC.
There is a fine line between legal and illegal, and efficient tax planning and a scam, and the HMRC are constantly changing the rules to close the loop holes.
Why do you think Jeremy Clarkson has a house on the Island of Mann ? So that his company, that the BBC pay for his services, can pay silly small amounts of tax. 10% max personal tax IIRC.
There is a fine line between legal and illegal, and efficient tax planning and a scam, and the HMRC are constantly changing the rules to close the loop holes.
As I said, it's not so much the tax aspect of this as a moral and ethical standpoint. Clarkson is not in charge of the BBC. Chief Executives have a moral imperative to be 100% part of the team they are supposed to be leading - not one or two steps removed.
It's bad for staff morale to find out your team leader is not a team member.
It's bad for staff morale to find out your team leader is not a team member.
Eric Mc said:
As I said, it's not so much the tax aspect of this as a moral and ethical standpoint. Clarkson is not in charge of the BBC. Chief Executives have a moral imperative to be 100% part of the team they are supposed to be leading - not one or two steps removed.
It's bad for staff morale to find out your team leader is not a team member.
It's just a papaerwork exercise though, it doesn't mean he isn't part of the team. I work in teams where maybe half the members are working through personal service companies, often including the team or project leader. It's bad for staff morale to find out your team leader is not a team member.
Dr Jekyll said:
Eric Mc said:
As I said, it's not so much the tax aspect of this as a moral and ethical standpoint. Clarkson is not in charge of the BBC. Chief Executives have a moral imperative to be 100% part of the team they are supposed to be leading - not one or two steps removed.
It's bad for staff morale to find out your team leader is not a team member.
It's just a papaerwork exercise though, it doesn't mean he isn't part of the team. I work in teams where maybe half the members are working through personal service companies, often including the team or project leader. It's bad for staff morale to find out your team leader is not a team member.
I am not saying that there isn't a place for outside contractors. Quite a few of my clients are engaged on such a basis. BUT it is a totally inappropriate vehicle to be used by the very HEAD of the organisation.
It's symbolic as much as anything - but symbols sometimes matter.
And if there is tax advantage being obtained, that makes it worse and insulting to the rest of the team.
Dr Jekyll said:
sumo69 said:
I am with Eric on this both on a moral and technical viewpoint.
Perhaps I am a cynic, but if he wasn't gaining a tax advantage I suspect he wouldn't be utilising his personal service company.
D
Of course he wouldn't! But so what?Perhaps I am a cynic, but if he wasn't gaining a tax advantage I suspect he wouldn't be utilising his personal service company.
D
If you don't see the relevance of this, then you are obviously not aware of how this plays out at a personal level. I am well aware of the technical, legal and tax aspects of these types of arrangemnents. But there is more to life, perception and awareness etc than just the "legality" of something.
It seems to me that we have lost a lot of our awareness of the subtleness of relationships and how the nature of arrangements can affect how things are managed. It seems that everything is OK, fine and just plain dandy as long as the law is complied with.
In reality, this is not the case. People actually do behave differently when they are not properly integrated into the organisation. They are always one step removed from their actions and the consequences of their actions. I think it is a major flaw in the way modern business is organised and partly resonsible for our current economic woes. It's even worse when the position is state appointed.
Eric Mc said:
None of that makes sense.
Sure it does....govt needed someone to manage the mess that the last lot left. No one in their right minds would do it for peanuts. Smart dude comes around..looks at it and quotes a price and mode of payment.
Govt agreed because some one had to sort it out and having a punching bag when things go wrong is not cheap! That is how govt run public departments now so HMRC had to agree.
From now on he will be taxed at source....Sure...except smart dude would have sorted out the mess, made his money and increased his PR status as a successful top executive and will move out of this role soon for 10 times the current pay!
Brilliant!
New POD said:
Why do you think Jeremy Clarkson has a house on the Island of Mann ? So that his company, that the BBC pay for his services, can pay silly small amounts of tax. 10% max personal tax IIRC.
He has a house on the Isle of Man as that is his Wife's family home.He pays UK tax.
It is part of the civil servant boys club that has created this and allowed it to happen.
bobbylondonuk said:
Eric Mc said:
None of that makes sense.
Sure it does....govt needed someone to manage the mess that the last lot left. No one in their right minds would do it for peanuts. Smart dude comes around..looks at it and quotes a price and mode of payment.
Govt agreed because some one had to sort it out and having a punching bag when things go wrong is not cheap! That is how govt run public departments now so HMRC had to agree.
From now on he will be taxed at source....Sure...except smart dude would have sorted out the mess, made his money and increased his PR status as a successful top executive and will move out of this role soon for 10 times the current pay!
Brilliant!
I'm tired of the "me first" way of thinking. No wonder the copuntry has problems.
Gassing Station | Finance | Top of Page | What's New | My Stuff