Tax Arrangements for Senior Employees
The Academies Financial Handbook and Annex C “Schedule of requirements (the ‘musts’)”, states under the proper and regular use of funds that an academy “Must ensure that senior officers’ payroll arrangements fully meet tax obligations and comply with HM Treasury’s guidance regarding employment and contract arrangements of individuals on the avoidance of tax.”
This guidance is called “Review of the tax arrangements of public sector appointees”. The review found a lack of transparency around the tax arrangements of key public sector employees and is part of the government’s commitment to tackling tax avoidance. This review is not about tax evasion but using companies, partnerships or sole traders as part of the employment packages of key employees to reduce the overall tax burden of that employee. The review calls this “off payroll”. It looks at civil servants who earn more than £58,200 per annum but does not define what a senior employee is. This salary level appears to be a good starting point to be applied throughout an academy.
The review looks at the use of service companies to provide the same service that the employee would have provided had they remained fully within the PAYE/NIC system.
A personal service company can be a genuine commercial arrangement where an academy can buy in the specialist skills on a short term basis that they would not require in the long term. The guidance states that those people “off payroll” should not seek to artificially reduce their tax payments. Typically for an academy this would be where an employee reduces their employment with that academy but then sells their services back to the academy.
The review recommends that senior officials should be included in the organisations payroll, unless there are exceptional circumstances, and that an engagement of more than six months in duration and a daily rate in excess of £220 exists. A contractual provision that allows the academy to seek assurance regarding the income tax and NIC obligations of the individual should be implemented.
The scope of the review covers all bodies required to follow the “Managing Public Money” guidance issued by the Treasury. Although published in 2007 this guidance is included in the Academies Financial Handbook and covers the requirements under the financial accountability system for academy trusts. In addition, in its report on the Department for Education, the National Audit Office stated that the department did not “receive sufficient assurance over compliance by academies with the Managing Public Money requirements” in obtaining HM Treasury approval over certain transactions. This is explicitly addressed in Managing Public Money and also the Academies Handbook. It also states that “auditors generally conducted an appropriate level of audit for the risks identified covering regularity but excluding compliance with Managing Public Money”. We think we can expect more emphasis in the new Accounts Directions and Handbook in respect of Managing Public Money.