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An investigative news site says that HMRC tax inspectors are ready to swoop on any public sector contractors who are believed to have underpaid tax. Many limited company contractors could potentially be caught up in the investigation.

Exaro, the site which first exposed the practice of Government departments paying some of their workers 'off payroll' (including the case of Ed Lester, the head of the Student Loans Company), says that HMRC is going to begin the process of investigating 'high risk' cases of tax underpayment by public sector workers.

Individuals found to have underpaid tax, where the department in question had not previous sanctioned the remuneration arrangement, are likely to face penalties and interest on any tax liabilities found to be owed.

According to Exaro, "HMRC will focus on potential breaches of IR35, a rule requiring so-called 'disguised employees' with personal-service companies to pay full tax."

Earlier this year, Danny Alexander (Chief Secretary to the Treasury) ordered an cross-departmental audit to discover how widespread the practice of 'off payroll' payments were. The audit found that 2,400 workers were being paid in a non-traditional manner, and 70% of these individuals were earning £400 per day or more. A large proportion are believed to be IT contractors - as 85% of the total number were being paid via recruitment agencies.

In May, the Government announced a new clampdown. In the future, all senior public officials have to be placed on the payroll, and all contractors earning £220 or more per day (for assignments of 6 months or more) must provide 'formal reassurances' that they are meeting their tax 'obligations'.

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