Two Whitehall departments have been handed fines by the Treasury for failing to do enough to stop staff being paid “off the books”.
The government brought in new rules in 2012 in a bid to clamp down on the practice of paying workers through service companies. Such “off-payroll” activity allows public sector staff to be designated as contractors, thereby potentially lowering their tax bill.
Announcing the findings of the Treasury’s second review into the practice, chief secretary Danny Alexander said 95% of government departments were now “broadly” following the rules.
But he announced that both the Ministry of Defence and the Department of Health would be fined - with the funds handed to charity - for a breach of the rules.
“I do not believe that less funding should be available to the users of the health service or our armed forces as a result of these mistakes, which is why I'm donating the proceeds of these fines to relevant charities,” Mr Alexander added.
“£1m will go to military charities who do so much to support our serving soldiers, veterans and their families, whilst £470,740 will support charitable health initiatives across the country.”
The MoD breach relates to what the Treasury terms an “administrative error”, which meant the ministry failed to seek assurance from a number of staff on their arrangements. In the case of NHS England, the Treasury said two board members had been paid off-payroll “for over a year”.
Nicholas Macpherson, the Treasury's permanent secretary, has meanwhile written to the Department for Work and Pensions to ask what steps it is taking to ensure it avoid errors in its own reporting.
The decision to bring in tougher rules for off-payroll arrangements followed a joint Panorama/Exaro investigation, which revealed that the then-head of the Student Loans Company, Ed Lester, had been paid through a personal service company, potentially lowering his tax bill.