NHS trusts have been ordered to stop paying interim senior executives off-payroll in a bid by the Department of Health to tackle possible tax avoidance.
A confidential letter, leaked to HSJ, has been sent to the chairs, chief executives and senior directors at strategic health authorities, primary care trusts and NHS trusts, setting out new rules.
The letter, from NHS chief executive Sir David Nicholson, also says government departments which flout the new rules could face a penalty five times the amount paid to the interim worker.
Earlier this year a Treasury review revealed many public sector executives were not on organisations’ payroll.
Of the 55 off-payroll NHS executives identified in the review, 15 cost £1,000 or more a day.
Earlier this year HSJ identified 48 off-payroll NHS executives who were being paid daily rates totalling £44,000 at the start of 2012.
Sir David’s letter, dated 20 August, instructs all NHS organisations that board members and senior officials with “significant financial responsibility should be on the organisation’s payroll”.
The letter says that in exceptional circumstances off-payroll arrangements may be used but they should exist for a maximum of six months.
Individuals who are off-payroll for more than six months, earning more than £220 a day, will need to provide assurance regarding income tax and National Insurance contributions. If they fail to do this, trusts need to “terminate the contract if the assurance is not provided”.
From 23 August all contracts will need to include clauses giving employers the ability to check workers’ tax status.
The letter says this should be done in at least 20 per cent of cases “to provide an effective disincentive to avoiding tax”.
A compliance check will be carried out by the Treasury in April 2013 and the changes will be applied to both new and existing contracts.
The letter says of the need for executives to be on the payroll: “The requirement is aimed at preventing avoidance of payment of income tax and national insurance contributions. If it emerges that any departments have not abided by these rules, sanctions will apply – with departmental resource budgets reduced by up to five times the payment in question.”
The letter added that although the Treasury was not intending to apply financial sanctions to NHS organisations themselves they should “seek to implement the recommendations as fully as possible”.