According to the Daily Telegraph, it appears that many top executives at the Department of Health have arrangements to use their own companies to provide their services, potentially avoiding PAYE tax and National Insurance. It also seems likely that other government departments will have similar cases.

But Colin Tice, Tax Partner at Cassons Chartered Accountants, is quick to point out that this is only part of the story.

“The fact is that just setting up a company to replace an employment relationship – as these stories suggest – often doesn’t work and should be caught by what is referred to as the ‘IR35 legislation’ which essentially removes the tax benefits by imposing PAYE and National Insurance on the company. Of course, that requires HM Revenue & Customs to properly police such arrangements.

In the right circumstances – and fundamentally with the right implementation – there are tax benefits in running a limited company instead of suffering tax as an individual. And with the right structure even the IR35 problems can be legitimately avoided. But people need to be aware that it really isn’t as simple as some news stories seem to indicate and getting things wrong can be expensive.”

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