MP asks Prime Minister to investigate use of “tax efficient” personal services contract by senior civil servantst by senior civil servants
South Norfolk MP Richard Bacon, a member of the Public Accounts Committee, has asked the Prime Minister to investigate the use of “tax efficient” personal services contracts by senior civil servants, following the disclosure that Mr Ed Lester, chief executive of the Student Loans Company, is paid gross of tax through the use of a personal services contract.
Mr Bacon said: “It is simply inappropriate for a full time civil servant and Accounting Officer for the Student Loans Company to be paid gross of tax through a personal services contract.
“My understanding is that this arrangement saves Mr Lester tens of thousands of pounds each year, some of which would otherwise be paid in income tax.
“It appears that the government expended some considerable effort to find a ‘tax efficient’ arrangement for Mr Lester. Indeed, the advice to the government from a leading accountancy firm, KPMG, as to the suitability of the proposed arrangements for Mr Lester was laid aside when it was found to be unhelpful.
“I am also concerned that HM Revenue and Customs appears to have approved the arrangements. The question of whether or not someone is an employee - and should therefore be paid through the PAYE tax system after the deduction of income tax and national insurance - is a matter of fact rather than opinion.
“In this case the facts indicate that Mr Lester is an employee. It is therefore likely that the arrangements are unlawful and that HMRC should not have approved them”.
Rt Hon David Cameron MP
Prime Minister
10 Downing Street
London SW1A 2AA
2 February 2011
Dear Prime Minister
USE OF PERSONAL SERVICES CONTRACTS FOR PUBLIC SERVANTS
I am writing to draw your attention to the use of a personal services contract to secure the services of Mr Ed Lester, chief executive of the Student Loans Company.
Mr Lester was originally appointed as Interim Chief Executive of the Student Loans Company from 28 May 2010 to 31 January 2011 and then as Chief Executive from 1 February 2011 onwards. I am concerned that a version of the original arrangements - by which Mr Lester was paid via a personal services contract when he served as an Interim - have continued since he became the appointed Chief Executive.
I am sure you will agree that it is simply inappropriate for a full time civil servant and Accounting Officer for the Student Loans Company to be paid gross of tax through a personal services contract. My understanding is that this arrangement saves Mr Lester tens of thousands of pounds each year, some of which would otherwise be paid in income tax.
It appears that the government expended some considerable effort to find a “tax efficient” arrangement for Mr Lester. Indeed, the advice to the government from a leading accountancy firm, KPMG, as to the suitability of the proposed arrangements for Mr Lester was laid aside when it was found to be unhelpful.
I am also concerned that HM Revenue and Customs appears to have approved the arrangements. The question of whether or not someone is an employee - and should therefore be paid through the PAYE tax system after the deduction of income tax and national insurance - is a matter of fact rather than opinion. In this case the facts indicate that Mr Lester is an employee. It is therefore likely that the arrangements are unlawful and that HMRC should not have approved them.
I would urge you to investigate this situation as a matter of urgency to ensure that the terms of Mr Lester’s appointment are corrected as soon as possible, and also to ensure that no other such arrangements exist for any other public servants.
With best wishes,
Yours sincerely
Richard Bacon
MP for South Norfolk
1 February 2012
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