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Ed Lester and SLC: don't try this at home
Readers may be following with some interest Newsnight’s allegations about Ed Lester and the Student Loans Company. Some may be scandalised that a senior civil servant seems to be avoiding tax: others may be wondering if they might be able to do the same thing.
Some facts: it is perfectly simple and legal for any employer to avoid the inconvenience of PAYE by the simple expedient of contracting with an individual’s service company rather than by employing the individual: indeed it is common practice. However, that is not the whole story: a service company which is interposed between an employer and an employee (or office-holder) in this way will normally be caught by the "IR35" rules which (broadly speaking) simply shift the PAYE obligation onto the service company. So, sadly, use of a service company in this way does not generally give any significant overall tax saving: certainly not the kind of reduction which has so excited Mr Paxman and his Newsnight colleagues.
However, what is very curious in this case is that everyone seems have proceeded (possibly with the agreement of HMRC - the facts are somewhat obscure) on the basis that IR35 did not apply to Placepass Limited (for such was the name of Mr Lester’s company). Since it is, on the face of it, difficult to conceive of a case more obviously caught by the IR35 legislation, HMRC has some serious explaining to do.
The scandal therefore is not that SLC has engaged Mr Lester through a service company: it is that the tax consequences of doing so do not seem to have been properly recognised. Thus for those readers who are wondering "would it work for me?" the answer must be - not unless you can be sure of benefitting from either the same extraordinary good fortune or the same friends in high places (whichever it may be) as Mr Edward Paul Lester...
For more on IR35 and on tax planning that legitimately works with or without friends in high places contact us or visit our web pages.
