The taxing question of Mr Lester

2 Feb

PCG's Chairman Chris Bryce

One rule for them and another for us?

That seems to be the case in the Ed Lester and the Student Loan Company saga.

Many contractors will have seen the story on BBC2’s news flagship Newsnight highlighting the contractual arrangements between the Student Loans Company (SLC) and its CEO, Ed Lester.

The report focussed on Mr Lester’s use of a limited company to contract his services to SLC, an arrangement that started when Mr Lester was an interim and was then continued after his employment apparently became of a more permanent nature – and specifically that senior politicians and HMRC had agreed to this arrangement.

Whilst we cannot and should not speculate as to whether Mr Lester and his company did or should have applied the appropriate taxation rules (IR35) – in which case he’d have ended up paying pretty much the same amount of tax and NICs as a regular PAYE employee – we can delve a little deeper into this case.

What can we ascertain from what’s been reported?

Well the programme and the press coverage that followed certainly questioned if doing the job of CEO of a major QUANGO as a “freelance” was acceptable?  The proper question is Mr Lester really a freelance? If he is on the Board of Directors of SLC, as you might expect of a CEO, it is certainly very unusual. Directors remuneration is always taxed as salary – it is certainly caught by IR35, but only because prior to IR35 it would have been salary anyway.

Has Mr Lester worked as a freelancer before? Was the role advertised as a contract role? If the answer to those questions is “no”, then it seems to me this really is a case of “disguised employment” and Friday-to-Monday employment.

To me, the real story here is not that Mr Lester used a company to bill for his services. It’s that his employer chose to let him do so. It’s difficult to see how any CEO, even one under a fixed-term contract, could NOT be regarded as an employee. The problem here isn’t Mr Lester’s company – it’s that SLC has effectively become an “unscrupulous employer” and avoided paying its fair share of tax. To wit: SLC paid no employer’s national insurance contributions.

Now, this may have suited Mr Lester, may even be what he demanded, but that does not negate the fact that, in my view, SLC are the wrongdoers here. Certainly SLC have, to date, avoided paying the right amount of tax whereas, depending on how he operated IR35, Mr Lester may or may not have. It may be we’ll never know the answer to that last point and it is not really for us to know – that is between Mr Lester and HMRC.

HMRC and Government frequently paint a picture of IR35 as being used to prevent disguised employment and protect “vulnerable workers” but from where I sit it’s hard to imagine that a QUANGO such as SLC could “take advantage” of such a high-powered executive and force him to incorporate so I’d have to take a guess that this was an arrangement which suited them both.

Digesting the facts as presented by Newsnight and the column inches the press have devoted to the case I’d have to conclude that the body on the naughty step today should really be SLC, not Mr Lester. SLC acted in such a way as to avoid their NICs obligations and yet it is Mr Lester who is the target of public and press ire.

Such is the ridiculous nature of IR35 – it targets the wrong party in “disguised employment” and Friday-to-Monday arrangements and unfairly penalises genuine contractors who do genuine freelance roles and sell their skills and services to a series of end-users.

Is Mr Lester and SLC’s arrangement a rare one? Well, there’s an enquiry underway to find out, but I can tell you that a couple of weeks ago an HMRC status inspector was telling me a similar tale about going after a taxpayer for IR35 and ending up getting the payment from the “unscrupulous employer” – another public body. But, as they say, that’s another story.

IR35 fails in every respect. It fails in it’s original intent:- it does nothing to protect genuinely vulnerable workers who have been forced to incorporate and contract back to their original employers, workers such as hotel chambermaids and even buffalo-herders, or so I’m told by HMRC! It’s not transparent, it’s unevenly applied, cannot be easily self-assessed and it’s a barrier to good business. It’s simply unfit for purpose and should have been repealed years ago.

Yes, I can hear you all shouting that’s what PCG have been telling government for over ten years.

Perhaps they’ll listen now!


5 Responses to “The taxing question of Mr Lester”

  1. Vernon Stradling February 2, 2012 at 7:55 pm #

    May I draw your attention to David Hencke’s blog?
    In a reply at 11:14pm to a comment by “Dougie”, Hencke says “…the IR 35 rules were linked in this case to an arcane concession which required a waiver. I asked the Revenue tons of times for an explanation and they would not give it.”
    I’d be very interested in PCG’s view on this “concession”. What is it? Did we know about it? Can anyone use it? etc, etc.
    Perhaps PCG will take this up with HMRC at the next meeting of the IR35 Working Group.

    • davidhencke February 17, 2012 at 1:22 pm #

      As the journalist who was tipped off to put in a FOI request on Mr Lester and worked with Newsnight and on the story (where there a lot of details on the tale), there was one glaring ommission in the information I received. They did not release the two submissions from the SLC to the HMRC saying it was outside the terms of the FOI.What was rather extraordinary were the two letters from the tax inspector who granted the arrangement . In the first caee he or she makes it very clear that the granting of this arrangement should not necesarily apply to anyone else and in the second case when he got the permanent job it was waved through. very odd

  2. Ian February 2, 2012 at 10:33 pm #

    Didn’t John Birt get paid through his own company when boss of the BBC? I’m sure there are plenty more for the NOTW (or it’s successors!!) to expose. It’s just an in-focus target while we all suffer another recession.

  3. Russell Gilbert February 3, 2012 at 1:21 am #

    Mr. Bryce hardly touches on what, for me at least, is the main point, which is that HMRC were complicit in the arrangement!

  4. chris owen February 3, 2012 at 10:46 am #

    This is not the first time. Remember the case of John Birt when he was Director General at the BBC.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: