On Wednesday the Guardian newspaper reported that more than 25 senior staff employed by the Department of Health has salaries paid direct to limited companies.

The head of the union that represents senior civil servants has said that these “pay deals” primarily put in place to reduce tax liabilities must stop.

The general secretary to the First Division Association, David Baume has said that the arrangements were made to hide the true salary levels paid to senior officials. It would appear that this situation has arisen owing to a big push under the last Labour government to, “bring people into the senior levels of government from, in particular, the private sector” when at the same time, “salaries have been held down”. He continued, "What we have found is that in certain cases because the market rate was so much greater than the salary that would have been offered in the civil service, various deals were being done and some of these are now being exposed."

Last December, Gareth Thomas the shadow Cabinet Office minister sought information regarding the nature of the payments made to the Senior Officials’ Ltd Companies. The answer from the Health Minister, Simon Burns, stated that, "It is not the department's policy to permit payments to civil servants by ways of limited companies."

In a further statement issued on Wednesday, the Department of Health stated, "The definition of staff in this context refers to civil servants, and we can confirm that no civil servant who is an employee of the Department of Health is paid in this way.” Whether this answer was trying to be “clever” remains to be seen; a person running their own Limited Company would not be classed as an employee! They could, of course, still work for the department.

There has been little mention of IR35, it will be interesting to see if HMRC investigates this situation with regard to that piece of legislation and whether they are as harsh with these so called civil servants as they are with IT contractors.

From the tax payer’s point of view there is very little to be gained, whatever the outcome.  If salaries have to rise to keep these “essential” individuals in post because the Limited Company option is taken away, the tax payer will have to foot the bill – in exactly the same way that the taxman receives less revenue from these civil servants if they use a Limited Company as a of reducing their tax liability.  The only real issue for IT contractors is whether the civil servants are treated in the same manner as them with regard to IR35.