As you know since the Ed Lester story went National last week, VB has carried two stories about people working for the Isle of Wight council through limited companies, rather than being employed under PAYE. Posing questions about it was highly relevant.
Bizarrely, the response by the council’s Chief Executive, Steve Beynon, was to send a statement to the County Press in advance of VB or answering VentnorBlog’s questions.
For the record, since the question was raised last week on BBC’s Newsnight, the CP has posed no questions on this matter, that we have seen in print or online – not even the Isle of Wight Stop the Cuts Alliance statement that they mention at the top of their repetition of the Beynon statement.
The only thing that touched on the subject was in last week’s CP, buried away on page 43, where five sentences focused on Steve Beynon saying that the council wouldn’t review limited company contracts.
Even more bizarrely, you’ll notice that Steve Beynon can’t bring him to write the words VentnorBlog.
Frankly, we find Steve Beynon’s actions perplexing.
Here’s his statement – Ed
Statement to media and interested parties re Dave Burbage employment arrangements with Isle of Wight Council
This statement is being released to present the full facts regarding the contractual arrangements with Dave Burbage.
Recently, we have been questioned regarding the contractual arrangements between the Isle of Wight Council and Dave Burbage. On each of the occasions that Mr Burbage’s employment arrangements have been questioned we have responded to these with complete transparency and Mr Burbage himself has met with the chair of Scrutiny to share private information and documents relating to his contract and similar information has been shared with the editor from the County Press. He did not need to do this but in keeping with his spirit of openness and honesty he chose to do so.
We believe elements of this ongoing media examination of his contract arrangements have included defamatory statements which impugn both the personal reputation of Mr Burbage and the council. Some of this coverage, in the council’s view is not acceptable and goes far beyond the accountability of a public servant.
I am, therefore, setting out, once and for all, the facts in this matter, (with Mr Burbage’s permission) in the hope that this will bring an end to the harassment of a highly respected officer who has served this authority well for the four years he has both lived and worked on the Island.
The facts speak for themselves.
Fact: Retirement
When Mr Burbage retired from the London Borough of Newham he had worked there for 27 years and in Local Government for over 40 years. He received a pension in accordance with the Local Government Pension Scheme rules. He did not retire on ill health (as reported in comments made on one blog site). He had been Chief Executive for a very successful eight years during which the borough played a key role in London’s Olympic Games bid. Given the length of service and the fact he had recently become a grandfather for the first time, it was mutually accepted this was a good time for his retirement.
In direct contrast to media reports, there is a substantial gap (6 figures+) between what Dave’s pension is and his leaving pensionable pay and he is therefore able to earn significantly without affecting his pension.
Fact : Why a limited Company?
Subsequently, Dave thought he would do some work and signed up with a few agencies who insisted he set up himself up as a limited company. He therefore signed up with a professional firm (accredited by the HMRC) who represent a large number of interim managers; Competex Ltd. They advised:
All interim providers (agencies), and the majority of clients, insist that candidates operate under the banner of a limited company.
“There are five main reasons for this:
To avoid employment agency legislation including possible PAYE complications
Your clients avoid the legal burden of employing a permanent member of staff (minimum wage, redundancy, SSP (Statutory Sick Pay), maternity leave etc.)
Your clients have no hidden employment costs (pensions, holiday pay and other long-term overheads)
Your clients have no responsibility to operate PAYE on your consultancy fees. This is extremely important since, if you are a sole trader, HMRC could dispute your status and, in certain circumstances, look to your client for income tax and National Insurance on your fees long after employment has ceased
Being employed by your own company is indisputable proof that you are not employed by your client (although not for IR35 purposes)
“At the same time, having your own company looks professional, especially if you have a well-chosen name, and this could make finding new assignments easier.
“In certain circumstances (when working outside IR35) there are opportunities for the payment of dividends which could offer National Insurance and income tax advantages, and even those working under IR35 may be able to attract non-IR35 income in between interim assignments. (Dave did not however take advantage of this – more explanation later)
“The downside of operating as a limited company is that you become both employer and employee, and as a result will have to bear the employer’s responsibility for National Insurance contributions. However, we strongly recommend our clients to build this amount into their daily rate.”
Fact: Contract with Council
Competex Ltd then established Dave’s Limited Company and he registered it for VAT. To ensure complete transparency he decided not to give it some obscure name but instead to use his own name so that it was absolutely clear to everyone that he was behind the company.
He signed up with an interim provider Gatenby Sanderson and considered a number of job offers before signing an initial five month contract (August 2007- January 2008) with Gatenby Sanderson who were contracted directly by the Council. On top of his day rate they charged an agency fee of some 17%. He was also able to claim travel and expenses of £110 per day.
Subsequently it became clear that the council needed and wanted Dave’s services for a much longer period. The initial arrangement was acceptable on a short-term basis but is an expensive option in the longer-term.
He therefore signed an 18 month contract from February 2008, directly between the council and his limited company. This was to directly benefit the council as it did not incur agency costs and the day rate was inclusive – i.e. the £110 expenses referred to above were no longer claimed.
It also meant that his limited company would be responsible for all employer costs and he would take the risk on sickness etc – in other words he only gets paid when he works.
Since that time Dave’s contract has been reviewed and extended a number of times. Each time there has been no objection from the council’s external auditors.
These arrangements are very transparent and are specifically highlighted in the statement of accounts each year. Payments are also listed under the council’s Spotlight on Spend data available on our website www.iwight.com via the following link http://www.iwight.com/council/transparency/transpar.asp
[Also available through Armchair Auditor. Ed]
Fact: Value for Money
As we have made clear on many occasions, if Dave had been appointed as a direct employee in 2008 the council would have been responsible for all employer costs and the overall cost to the council would have been £167k per annum. He has also reduced his charge to the council a number of times and the current annual cost to the authority is £123,500 inclusive of all employer on-costs and expenses. If he was a direct employee the cost to the council would be at least some £25,000 per annum more.
Fact: Tax payments
In one media blog source, a comment in relation to his tax affairs says:-
“One thing that many Islanders might think particularly galling about Mr Burbage’s remuneration arrangements with his County Hall cronies is that, as the architect of cuts in jobs and pay of honest-to-goodness IW council employees, he has made sure he wheelbarrows home wodges of Wight wonga beyond the wildest dreams of those lowly wage slaves and at a fraction of the tax rate his victims have to pay.”
Leaving aside the tone of the comments and the fact that he is not the architect of cuts in jobs and pay – these are collective responsibilities in response to the council’s financial situation, this is a categorical statement that infers Dave is paying less tax because of the arrangements with the council and is in some way operating tax avoidance. Though presented as fact, the statement is completely untrue. Dave meets all of his tax obligations and, as mentioned earlier, has in the spirit of transparency, provided detailed evidence of this to councillors and the County Press.
In a similar vein, Dave also faced allegations that he did not pay NI – a fact that he was also quick to prove was totally false. From the income Dave receives from the Council he has to Pay Employers NI. In 2010/11 this amounted to £17,618.16p. This is in fact higher than the council would pay if he were a direct employee.
Fact PAYE
Dave’s company affairs are undertaken by an HMRC accredited company Competex Ltd. specialising in such arrangements. They undertake his accounts, payroll, and HMRC returns. They deduct employer’s National Insurance and operate his pay arrangements under PAYE. They therefore deduct employees NI and income tax at 40% and 50% and pay these over to HMRC.
Dave is also subject to IR35 rules (where the work done is similar to that of a direct employee) which means that he has to pay himself at least 95% of what he receives as salary subject to income tax. As the council is his sole client, all of his income from his contract with the council is subject to IR35.
In relation to the most recent media enquiries concerning ‘parallels’ with an article that appeared in the Telegraph relating to Ed Lester, who allegedly paid himself a dividend from his earnings under a similar arrangement, Dave could legitimately under HMRC rules pay himself a dividend and make pension payments to reduce his income tax bill. He has categorically stated to the media that he has never done so (and has no intention of doing so) as outlined in the following statement:
Steve Beynon said: “We will continue to employ staff in accordance with the laws of the land in whatever way provides best value for money for taxpayers.
“Under the current arrangements, all employer’s liabilities such as pension and national insurance are paid by Mr Burbage and not the council and neither is Mr Burbage entitled to sick pay. He pays income tax on his full salary and does not pay himself a dividend.
“This means that it is considerably cheaper to employ him under the current arrangement which is one common in the public and private sector.
“The arrangement has been reviewed several times and on each occasion has been found to provide exceptional value to the council tax payer.”
Regrettably the reference to non payment of a dividend included within the statement was omitted from media reports- an issue that we have raised with the media concerned.
I believe that this information should bring an end to the continued speculation about the employment arrangements of Mr Burbage and future enquiries will be referred to this full and detailed statement.
Steve Beynon
Chief Executive
7 February 2012
