What does the future hold for public sector contractors?

Tax has become something of a thorny issue in austerity Britain.

First it was Jimmy Carr who was pilloried for reducing his tax liabilities through the Jersey-based K2 scheme and it is now it is the BBC in the firing line after details emerged of some of its highest earners being paid via limited companies, therefore reducing the amount of tax they have to pay.

A subsequent investigation found that more than 2,000 contractors in the public sector are being paid via such vehicles, most notably Ed Lester, head of the Student Loans Company, who reportedly saves £40,000 a year in tax on his £160,000 a year salary.

public sector contractors

However, the landscape could be set to change dramatically after leaked documents obtained by the Professional Contractors Group showed a series of measures designed to reduce such payment schemes.

Internal memos sent between the Treasury and the Department for Innovation and Skills set out some major changes, the most notable of which is a plan to pay civil service contractors earning more than £220 a day or on contracts longer than six months as permanent employees.

These proposals have provoked strong reactions from those in the contracting industry, with the general consensus being that they could prove disastrous in the long term. Continue reading