Is the BBC the British Tax Avoidance Corporation?

BBC now in row over paying 3,000 people through personal service companies

The BBC has disclosed that around 3000 people on the Corporation’s books are paid through personal service companies – the same system used until banned by the Treasury by Ed Lester, the Student Loans Company chief, to avoid paying tax or national insurance at source.The full story is in Exaro News at http://www.exaronews.com It comes from a Freedom of Information request by David Mowat, the Conservative MP for Warrington,South and only covers part of the picture.
Altogether the BBC across the globe has 20,000 directly paid employees and 12,000 freelancers – 3,000 of them through personal service companies.
The figures are an underestimate since it does not include many of the BBC’s commercial companies and all of BBC’s talent – defined by them as ” people who appear in presenting or journalistic roles on our television, radio and online.”
So none of the high paid presenters will be in this breakdown nor will be people employed on many of the BBC’s commercial activities. Nor are people supplied through Reed Personnel who can choose to be paid through a personal service company, and BBC has decided to keep their numbers secret.
This means the figure must be much, much higher. A breakdown provided by the BBC – suggests that more than half the 3,000 are taking less than £26,000 a year, which suggests that they are genuine freelance. Another 1300 or so earn over £26,000 – 318 over £50,000 – and of these five earning over £150,000 and 31 over £100,000.
The BBC insist that none of them are permanent staff and like the government point out that none of them are being paid illegally.
A BBC spokeswoman said:”In the main they are hired to do specific jobs for a fixed period of time such as directing, editing and other craft skills. When a person is contracted in this way it is their responsibility to organise their tax arrangements directly with the HMRC. This is entirely in keeping with HMRC regulations and is standard practice across broadcasting and many other industries.”
However there are other questions to be answered. Why are the BBC not doing the same review as Whitehall in finding out whether all these contracts are genuine? David Mowat is right when says the BBC management should do this.
And why can’t we find out what the BBC Talent is paid – rather than the BBC sheltering behind an exemption through their Freedom of Information Act aimed to protect journalists; sources not disclose their pay – since it is paid by the licence payer.
Also rather disturbingly two prominent journos (one ex BBC)have told me the BBC tried to encourage them to be paid through personal service companies when they did not want to do it. Is this pressure from the BBC to avoid having to pay national insurance and encouraging possible tax avoidance. We should be told.

How the Student Loan tax scandal broke

Here is a short video produced by Exaro showing how I got hold of the original story and the repercussions that followed. For those interested in this you can view it here.


It also partly a tribute to Whitehall sources who decided this scandal had to stop and  a warning to ministers how clever some Whitehall people are in slipping stuff through right under their noses.

Student Loans Chief Ed Lester’s personal company bites the dust

An idyllic scene at Temple Mill Island, which used to be the home of Ed Lester's personal service company.

Student Loans Company chief executive, Ed Lester, is closing down his personal service company after the furore over the revelations of his tax arrangements.

 A notice in today’s London Gazette reveals he and his partner Dolores Hawkins have applied to Companies House to have the firm called Placepass struck off the register.

Full details of the story are on the website http://www.exaronews.com  but suffice to say the company has been around for 14 years during the time Mr Lester worked for the Office for Government Commerce, NHS Direct and Motability and has had various home addresses from Cambridge to London Docklands.

The firm was used  as a ” tax efficient” way for the chief executive  to funnel his £182,000 pay and pension package and his £28,000 in expenses from the Student Loans Company. It was based at his home on Temple Mills island on the River Thames at Marlow, Buckinghamshire. The island is a gated community.

Ed Lester’s decision is interesting . The story of his tax arrangements  is already causing alarm among thousands of other people working for government departments, agencies ,the NHS and local government. The chancellor, George Osborne, is also looking at changing the tax laws covering this in tomorrow’s budget. It will be complicated and people need to watch for the small print in the Budget statement to find out what will happen.

Margaret versus the mandarins

Margaret Hodge: Standing Up for MPs' and the public's rights

Watch out for a major speech by Margaret Hodge, chair of the Commons public accounts committee, at Policy Exchange in London this Thursday on the accountability of Whitehall to Parliament.

This is going to be a historic moment for the relationship between MPs and mandarins and I am not expecting the doughty chairman of Parliament’s most powerful committee to pull any punches. I also expect it to ignite a big debate.

 It is also important moment for people who believe that Parliament is just a talking shop. This is because it will show that MPs want action on the way our taxes are spent and even more so on who pays their taxes.

 It is also about the honesty and integrity of Dave Hartnett, the head of the Inland Revenue (HMRC), and his attempt to get away with telling lies to MPs on a deal with one of biggest bankers, Goldman Sachs.

The story of this dispute is published today by Exaro News at http://bit.ly/zHz7pP or on the Exaro News website http:// www.exaronews.com .

 Suffice to say it reveals a massive tussle between Lord O’Donnell, the former Cabinet Secretary and Mrs Hodge over whether civil servants are accountable to MPs or ministers – going to heart of the matter of whether MPs can stand up for us as taxpayers.

 Lord O’Donnell ,who wrote the letter days before he retired ,has accused the Public Accounts Committee of  publicly humiliating a senior law official at the revenue by making him swear on the Bible before giving evidence. He talks of widespread anger in Whitehall and in the legal profession about this.

 But he ignores the reason – that the man’s boss, Dave Hartnett, had misled Parliament over a sweetheart tax deal he negotiated with Goldman Sachs saving them possibly billions in tax. He pretended it was nothing to do with him.

 This is why people should back Margaret Hodge, her committee which includes very equally strong minded MPs like Tories Richard Bacon and Stephen Barclay in standing up for MPs and the public’s rights.

 Thursday will light the blue touch-paper at Policy Exchange. If there are any seats left go and watch and hear. It’s free.

Revealed: Whitehall angst and a KPMG U-turn on Lester’s tax affairs

ImageNew e-mails and financial advice put up today on the Exaro news website (http://exaronews.com) reveal more of the background surrounding the extraordinary decision to grant Ed Lester, the chief executive of the Student Loans Company, an arrangement when he was not taxed or paid his national insurance at source.

It shows that senior civil servants were really uneasy about the deal. In one e-mail, Daniel Jenkins of the Department of Business, Innovation and Skills legal department wrote: “Applying the tests of employment status, I wonder whether it is possible for a CEO to be anything other than an employee/office-holder, given the degree of integration into the company which he presumably needs to carry out his duties.”

In another e-mail Michael Hipkins, then a BIS appointee to the SLC board writes:

“The risk, which nearly the whole interim industry currently runs, is that a contract for ‘supplying an individual’ is deemed to be an employment contract, rather than a commercial contract for services. So it appears there is a risk, and there is a judgement whether the risk is worth running.

“For my part, I note that when the terms of the interim CEO’s remuneration were cleared with Treasury, they raised no objection to the form of the contract, nor that there was an agency acting as intermediary.”

“It looks as if the company would be running no greater a risk than any other company employing interims on consultancy contracts; and the fact that the Treasury raised no objection to the proposed arrangement in the case of the CEO must mitigate that risk further.”

But the angst is nothing to the role of KPMG, the auditors and advisers to the SLC, who gave contrary advice in the space of a month.

 First they said – as subsequently was proved right by Chief Secretary to the Treasury,Danny Alexander’s decision to cancel the deal,- that no office holder could be a  limited company.

 Then they changed their mind saying; HMRC “may agree on a concessionary basis”, under a provision known as the extra-statutory concession, A37, to override the rule that all company office-holders must pay tax and national insurance.

It said that Lester’s pay can then be treated as “income of Penna (who acted as the recruiting agency for Ed Lester) for corporation-tax purposes and not income of EL for income-tax purposes.”

KPMG said that the SLC should make no expenses or bonus payment direct to Lester, but only through Penna to his personal company, otherwise it would invalidate any concession.

Even more interesting  given the developing furore over this issue the memo reveals that KPMG had done this before.

 It said KPMG “have been successful in the past in agreeing with HMRC that the concession can be extended to circumstances similar to the arrangements in place here. However as this is a concession (rather than a statutory provision) there is no guarantee that HMRC will agree that the concession  applies in this case given the agency and personal service company arangements in place.”

The next questions in this saga will be who else has benefitted from this arrangement and what George Osborne, the chancellor, proposes to do to close this loophole in the budget this month. The full story is revealed in four new articles on the Exaro website.

Exclusive: Top nuclear official loses contract as Whitehall panics over tax avoidance

Office for Nuclear Regulation:First victim of Whitehall cull

The man in charge of  running nuclear regulation has had his contract terminated in the wake of panic across Whitehall following  the disclosure that Ed Lester, chief executive of the Student Loans Company, avoided having tax and national insurance deducted by being paid through a personal service company.

Paul Brown, interim chief operating officer of the newly formed Office for Nuclear Regulation,has been told that his contract will not be renewed next month provoking  extraordinary anger among professional organisations representing freelances.They fear the whole situation is getting out of hand and that there could be a witch hunt in Whitehall against anyone who has a personal company.

The full story is published on the investigative news website http://www.exaronews.com .But the essence of the dispute is that Whitehall panic – generated by the decision of Danny Alexander, Chief Secretary to the Treasury,checking 4000 senior civil servants pay arrangements could lead to the wrong people being asked to go.

The difference between Ed Lester’s arrangement, now moved to PAYE for his £182,000 post, and Paul Brown’s post, is that Ed Lester seemed to have only one job and was getting paid holidays and a £28,000 pension contribution,normally associated with a full-time post.

Paul Brown’s company,Operations Improvements Ltd, seems to be a tailor-made vehicle to offer his services for a string of jobs including previous posts at the Health and Safety Executive and the Forensic Science Service. His Linked-In site also shows he does mentoring and emergency work as a director.

The irony of all this is that Ed Lester who has had to accept a PAYE arrangement has kept his job while Mr Brown seems to have become the first senior man in Whitehall to lose his.

PCG, the organisation which represents some 20,000 freelance contractors and professionals, also has a WordPress blog where Chris Bryce,chairman of PCG, outlines the arguments for  not treating everyone the same.The blog is at http://www.insidepcg.wordpress.com  for those who want to read it.

Paul Brown is barred by his existing contract from speaking about this, but friends tell me he is furious about the decision.

Last night (Friday) it became clear that a second senior official, Jon Seddon, the finance director of the nuclear agency, had also had his contract terminated.

Victory: Ed Lester now started paying full tax

Following the exposure by the joint  Exaro News and BBC Newsnight investigation  Ed Lester, head of the Student Loans Company, is  now having  his tax and national insurance deducted at source.

 The deal backdated to February 1 will mean he will be on the pay roll until his contract ends in February 2013. The change will mean that he will have to pay full National Insurance contributions. The SLC – which has avoided paying NI will have to pay £17,000 to the tax authorities  this coming year.  Calculations by accountancy specialists means that on his £182,00o salary (including £14,000 bonus and £28,000 pension ) he will be possibly have to pay £26,000 in tax which he could have avoided by placing the contract through his personal service company, Placepass, based at his home on an island in River  Thames  at Marlow, Buckinghamshire.

He could also be charged benefits in kind on his Glasgow flat which the government is funding as part of a £550 a week expenses package.

This is the statement from the Student Loans Company:

“We are taking forward the changes to Ed Lester’s contract, following the announcement by Universities Minister, David Willetts on 2 February 2012.

“Ed Lester will be a Student Loans Company employee with effect from 1 February 2012 and tax and NI will be deducted at source. His salary and bonus arrangements will be consistent with his previous contract.”

One down, how many more to go, when the investigation by Danny Alexander, chief secretary to the Treasury, starts to bite.

Did the former Cabinet Secretary unwittingly sanction “tax avoidance”?

Gus O'Donnell: Tax avoiders friend in Whitehall? Pic Courtesy: Daily Telegraph

The huge  row following the disclosure  of the tax  ” avoidance” arrangements for Ed Lester, chief executive of the Students Loans Company, has concentrated on how government ministers approved the arrangement.

Not highlighted was the role of the then Cabinet Secretary, Gus O’Donnell, recently retired on an index linked pension and getting £300 a day for every day he turns up as a newly ennobled peer.

Documents released to me under the Freedom of Information Act reveal that Gus O’Donnell when he heard Lester was not going to be on the pay roll of the Student Loans Company rightly demanded an ” urgent clarification “. He also insisted on an explanation about the ” costs to the Exchequer” of the arrangement. He was then sent a detailed document which showed that if he was paid through an agency it would cost less than if he was on the staff. Details of  the document are published tonight on the Exaronews website (www.exaronews.com)  and also detailed in a story by Rajeev Syal on the Guardian website(http://bit.ly/yWOy7H ).

Basically it is a scam explanation – revealing huge fees (£83,000) to be paid to Penna Consulting, the management firm, who acted as middlemen to pass money on to  his private company – if he was taken on the pay roll. It also suggested that his expenses of £550 a week for a flat and fare would have to be grossed up to cover his personal tax bill if he was on the staff.

Meanwhile the savings side if he was not on the pay roll included a whopping £17,000 to the SLC for avoiding paying the employers national insurance contribution.

 Any cursory glance at these figures by anybody reasonably intelligent would suggest that these were sham calculations and could have been knocked down, particularly the big fee to the agency. Yet the e-mails show Gus was ” content”.

Frankly this is as bad as Danny Alexander, chief secretary to the Treasury, not realising the tax implications of the deal. Here one of the most highly paid people in Whitehall and head of the civil service appears to be oblivious of what he is sanctioning. What does this say of the ability of people at the top or are they so used to paying out such big fees (taxpayers money) that they don’t notice?

I have tried to contact Lord O’Donnell for an explanation but he has not returned my calls. And the Cabinet Office is now sheltering around the fact that Danny Alexander has ordered a review to stop answering questions – even though some of the points I have raised have nothing to do with the review. Senior civil servants seem rather good at covering their tracks – it is probably a key part of their training.

Update: Whitehall tax avoidance – more evidence on the way

Since this blog  revealing the Exaro News (http://www.exaronews.com) and BBC Newsnight investigation into the tax arrangement ministers approved for  Ed Lester, chief executive of the Student Loans Company, I have received a number of calls and e-mails suggesting this practice is more widespread than  just Whitehall. Danny Alexander, chief secretary to the Treasury, has rightly ordered a Whitehall wide review to find out the scale of the arrangements, which he appears to have unwittingly endorsed. It looks like Mr Lester  will have to pay tax in the way everybody does when they hold down a full-time equivalent job – through PAYE.

Some 2500 people has so far viewed this blog on top of millions who would have seen it on TV, on the radio  and read it  in newspapers from the The Guardian to the Daily Telegraph and Daily Mail.

 I am now gathering more information to continue this investigation and would like to thank a number of people who have already contacted me. However if you know of a similar practice where you work  you can contact me direct on my e-mail david.hencke@gmail.com. All information will be treated in confidence and all sources – like the original tip-off – that led to the exposure – will be protected under the journalist’s code of practice.

Also if you know of consultancy firms  who make big charges for supplying these people  to the government and the public sector and then help them arrange how to avoid paying their full tax, let me know. Their fees are coming out of your taxes.

 Help stamp out people ripping you off by using your taxes from your hard-earned cash – by avoiding pay their fair share of tax – and stop HM Revenue and Customs having one rule for the workers and kid glove treatment for those with the money to exploit every loophole possible.

Exclusive: Whitehall tax avoidance “scam” revealed

Flashy Student Loan Co HQ where Ed Lester works without being taxed at source. Pic courtesy BBC

Civil servants could be able to avoid legally paying tens of thousands of tax while working in Whitehall. An investigation by Exaro News and BBC Newsnight based on documents obtained by me through a Freedom of Information request has revealed an extraordinary personal tax deal negotiated by the Student Loan Company for its £182,000 a year Whitehall boss, Ed Lester. The deal is £140,000 salary,£14,000  bonus, £28,000 pension and £28,000 expenses for flight and Glasgow flat.

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.

As a result instead of paying tax at the top rate of 50 per cent – the company is likely to only have to pay corporation tax at the government’s new lower small company rate of 21 per cent and minimal national insurance. Mr Lester has declined to discuss the matter with Newsnight or Exaro News.

Full and extensive details are revealed in a series of articles on the Exaro News website (http://www.exaronews.com) – behind a pay wall but if you register  it is free for a week – or you can see the film about it on BBC Newsnight.

The investigation has forced Mr Alexander into ordering a  Whitehall wide inquiry to find out how many civil servants are benefitting from the same secret deals.  The reason is that ministers  DONT’ KNOW  and it looks like in Mr Willetts’ case DON’T CARE.  Alexander personally examined each top pay contract and now admits he missed the tax implications of this particular deal.

Whatever his inquiry reveals this arrangement looks to me on a par with all the recent scandals involving banker’s bonuses and Sir Fred the Shred’s stripped honours. Basically you as a taxpayer are paying the state to negotiate a deal for a very highly paid  official to avoid tax. This can’t be fair, right or decent to millions of low paid public and private sector workers who are paying a big whack in tax and can’t set up personal service companies – effectively to avoid paying tax. It also has the added insult that the man who has got this deal is pursuing every single student in the UK to make sure they pay every penny back of their student loan.