Trust failed to deduct tax from £145k payments to CEO's company

An academy trust boss has stepped down after a government investigation found payments totalling £145,006 were made to a company he owned without tax or national insurance deductions.

An Education and Skills Funding Agency investigation published this week revealed that Education for the 21st Century trust failed to make the deductions on payments totalling £145,006 to a firm owned by chief executive Paul Murphy.

The payments, for his services as CEO, ran from 2014 and were paid on top of Murphy’s salary as a headteacher. The transactions were not declared in the trust’s 2015-16 accounts.

A worker is paid “off-payroll” when they work through an intermediary, such as their own limited company, rather than providing their services directly and being counted as an employee.

HM Revenue and Customs’ rules stress that senior staff should generally be on the payroll, unless there are “exceptional temporary circumstances”.

The legislation was strengthened in April 2017 to make it the responsibility of the client or employer, not the contractor, to determine whether they are paid off-payroll and to ensure they are making the right income tax and national insurance contributions.

Education for the 21st Century trust is believed to be the first that has fallen foul of the tightened rules. It has also been issued a financial notice to improve.

But new government figures show off-payroll arrangements continue to be widely used. A total of 144 academy trusts paid some staff off-payroll in 2016-17. Ten trusts also remunerate their trustees in this way.

Adrian Hulme, senior consultant at BHP Chartered Accountants, said it is a trust’s legal obligation to check the employment status of anyone they are paying off-payroll, whether they are self-employed, operating through a limited company or an agency.

He said trusts need to make judgements according to “each individual contract”, with off-payroll arrangements tending to be with “specialists working on certain projects”.

“Ask yourself, is their work the same as other employees? In the staffroom, can you tell any difference between them and a member of staff on the payroll?” Hulme added.

Trusts can also use HMRC’s online “check employment status for tax” service as a guide and should keep a hard copy of the results. If they have any doubts they should check with their professional advisors, he said.

Other trusts have also been caught out over improper off-payroll arrangements. Last month Liam Nolan, former chief executive of the Perry Beeches trust, was found guilty of unacceptable professional conduct after an ESFA investigation revealed that he was paid £160,000 over two years on top of his £120,000 headteacher salary.

The payment was for his services as CEO, a role subcontracted via Nexus Schools Limited and Liam Nolan Limited, a private company of which he was the sole director.

However, despite the potential for exploitation, off-payroll arrangements are not problematic in and of themselves.

In setting up the Floreat Education Trust for example, Lord James O’Shaughnessy was paid £61,734 through his company Mayforth Consulting Limited. A spokesperson for Floreat said the payment was “a fair and reasonable sum for the work he carried out” between 2013 to 2015.

“All arrangements were approved by the board, disclosed in the annual accounts, and were in line with the trust’s governance and financial regulations.”

The arrangement ran for two years, but this was while the trust was still being established.

A Department for Education spokesperson said they will intervene when trusts flout the rules.