CIVIL SERVANTS engaged on contracts longer than six months or paid more than £220 per day will be paid as employees in an attempt to scupper tax avoidance in public offices.
The rules were set out in memos – obtained by the Professional Contractors Group – which were sent between the Treasury and the Department for Business, Innovation and Skills, the Daily Mail reports.
The rules, due to come into force in mid-September, are designed to prevent a repeat of the controversial arrangements that saw head of student loans Ed Lester paid £160,000 per year via a service company, reportedly saving him about £40,000 in taxes.
The plans are true to the pledge made by Treasury secretary Danny Alexander in May, after it emerged 2,000 public office holders were paid in this way.
Following a review, he promised civil servants earning more than £220 per day for more than six months would be required to demonstrate their taxes are in order, and will be obliged to move onto a payroll system or have their contract terminated.
The Public Accounts Committee this week heard from Zarin Patel, CFO of the BBC, that employing television and radio presenters and production staff on a freelance basis was standard practice in the broadcasting industry.
MPs roundly criticised the corporation after the committee heard 148 of its 467 presenters were off-payroll, while overall approximately 25,000 freelance contractors work for the broadcaster every year.
Existing IR35 legislation is designed to prevent freelance workers from taking home more than their equivalent on-payroll colleagues. However, the committee was told by Lin Homer, chief executive of HM Revenue & Customs, that just 23 investigations under IR35 had taken place in 2011.
John Brazier, managing director of Professional Contractors, told the Daily Mail: "The harsh reality of this move will be to remove public sector access to freelance expertise and bluntly threatens to destabilise many government departments.
"This is now attacking legitimate contractors who have done nothing wrong and are taking the brunt of a panic-stricken government and an HMRC who have launched a witch hunt."
He added contractors "are essential to delivering vital public services" and are "being treated in a scandalous way".
"The repercussions for operation of government are potentially catastrophic," he concluded.
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