Soul Trader; Or: The Perverse Joy of Paying Income Tax

Last night, benefiting from the strike by civil servants in Her Majesty's Revenue and Customs against proposed privatisation, I filed my tax return late. Ooh, it felt naughty but nice!

I avoided the £100 fine for late filing because the deadline had been extended.

Seems others have been naughty about their tax but less legitimately. Much cleverer bloggers than I are looking in more detail at the tax arrangements of senior Barnet council staff, some of which bear a marked resemblance to those at the centre of the storm around Ed Lester.

Ed Lester is Chief Executive of the Student Loans Company. He has been paid through a private firm (which he owns) rather than in the way that most, more lowly people doing the government's work earn a crust, being directly employed, which entails them paying tax at source. By this means, it is alleged, Lester has managed to pay a lot less tax than someone directly employed on his pay scale would expect to fork out.

This is how the Telegraph, for one, reported it today:

Mr Lester, a former chief executive of NHS Direct, was hired as interim chief executive in May 2010 before the deal was made permanent in December 2010. His two year contract runs from 1 February 2011 to 31 January 2013.

He is paid a basic salary of £140,000 a year, and can qualify annually for a £14,000 bonus and a cash pension contribution of £28,000, taking his total pay to £182,000, via the head-hunter which placed him with the Student Loans Company.

However the sums are paid to a private company he owns, rather than to him personally as if he were an employee.

This allows Mr Lester to pay corporation tax of 21 per cent, rather than up to 50 per cent, income tax on his earnings. Mr Lester’s pay arrangements are estimated by accountants to have saved him £40,000 a year, according to Newsnight.

Having just coughed up a handsome percentage on the measly pittance of pay that I made as a sole trader last year, I feel this issue quite keenly.

I'm not avoiding my tax; Harry Redknapp says that he'd rather pay too much tax than too little; now, how about those senior executives at Barnet Council? Do they want to review their arrangements? Or, like Ed Lester, do they want their arrangements reviewed for them in full public glare?