Self Employed Senior Council Officers - Time Is Up For This Tax Wheeze

The big concern about full time staff being paid as consultants continues to rumble on. This morning the Daily Telegraph reports on consultants being paid £350 and £375 a day for their services. Sounds cheap to me compared to the rates that are being paid to the numerous consultants in Barnet.

Barnet’s own annual accounts for 2010/11 identifies 9 senior officers who are paid as consultants, but that is just the tip of the iceberg. I have seen the invoices to some of these consultants and the fees are quite shocking. A consultant who comes in, does a discrete piece of work and leaves moving on to the next project is one thing. But what we have in Barnet are people who have been working full time for over a year in a designated council post.

Since it was discovered that the head of the Student Loans Company was a self employed consultant, this issue has gained some publicity but the Bloggers of Barnet have been going on about this issue for a very long time and have been completely ignored. Her Majesty’s Revenue & Customs have a very useful tool on their website - Employment Status Indicator - which helps to establish whether someone is an employee or a self employed in the eyes of the tax authorities and it is obvious to me that many of these consultants are technically employees. As well as avoiding tax this situation creates liabilities for Barnet Council which, according to the HMRC website includes the ability of these consultants to claim redundancy and claim for unfair dismissal.

The time has come for Barnet to put its house in order and regularise the employment stays of its many ‘consultants’ and if councillors or the chief executive won’t initiate this process then it is about time that Eric Pickle did.

Cllr Cornelius and tax implications of Barnet's latest scheme

This week Barnet Council approved the establishment of a new organisation, a Local Authority Trading Company (LATC) to provide Adult Social Services in Barnet. This trading company will also take in Barnet Homes as a subsidiary.

The council believe that there will be significant financial benefits to this strategy although the details of the business case are hidden away in an exempt report. What really caught my eye was the Barnet Times report of the meeting where it noted:

"Councillor Richard Cornelius urged officers to keep looking at the tax implications of setting up such a body and asked them to continue to take advice to protect the council."

Now this is very interesting because setting up an LATC actually raises a number of tax risks as detailed in the Cabinet Resources Committee papers. First of all the new organisation becomes liable for VAT on all non-employee expenditure, estimated at £344,666 per annum. Unlike the Council, this VAT is irrecoverable so it is a net loss to the organisation.
The LATC may also affect the taxable status of Barnet Homes. If that does happen it has been estimated that in 2009/10 it would have meant paying Corporation Tax of £187,000 which is currently retained within Barnet Homes.

I think Cllr Cornelius is absolute right to urge officers to keep looking at the tax implications which could mean over £500,000 of very valuable revenue simply going to the taxman when it could have been spent on some of the most vulnerable people in Barnet.

As ever I remain exceptionally concerned that Barnet seem to press ahead with novel schemes which sound good on paper but which could turn into massive problems.