Tram ‘directors’ paid only 20% in tax from £1m fees and bonuses

The council is under pressure to rethink diversion plans
The council is under pressure to rethink diversion plans
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SENIOR figures in the company behind the Edinburgh trams fiasco were paid more than £1 million in fees and bonuses through a controversial system that allowed them to avoid paying income tax at source.

Instead of employing three consultants as members of staff, which would have meant they were taxed at a rate of 40 per cent, Transport Initiative Edinburgh (Tie) allowed them to be paid through companies, which cut their tax rate in half.

The system, which is legal, allows a recipient’s company to pay corporation tax of around 20 per cent instead of income tax of 40 per cent.

Both the Scottish and UK governments have clamped down on the “off-payroll” system after it was revealed last year that Ed Lester, the chief executive of the Student Loans Company, had been paid a six-figure salary through a consultancy. This saved him paying both income tax and national insurance.

After Danny Alexander, the Chief Secretary of the Treasury, ordered a public review of the practice after it was discovered that there were 2,400 other cases.

A Freedom of Information request revealed this weekend that the three consultants were each given a title “director”, although they were not directors of Tie in a legal sense.

Among the individuals was Matthew Cross, Tie’s former interim “project director”, who was paid £370,000 in fees and bonuses through his company, Strategic Lines.

Jim McEwan, the “business improvement director”, was paid £405,000 through a company called “Racreb Consulting” with £90,000 of the sum as a bonus.

Geoff Gilbert, the “commercial director” had £230,000 paid to his company for his services to Tie.

While there is no suggestion of any wrongdoing on the part of any of the three individuals, the system permitted by Tie may have collectively saved them hundreds of thousands in payments to HMRC.

Responding to the revelations, Kezia Dugdale, the Labour MSP for Lothian, said: “The more we hear about the goings-on at Tie, the more astounded people become. There was already a strong case for a public inquiry, and this makes it completely unanswerable. It also highlights the folly of the SNP in ordering civil servants off the management board of the trams project in 2007. It took five years for the SNP to reverse that mistake – but clearly a culture of excess was allowed to develop at Tie.”

Alastair Maclean, director of corporate covernance at Edinburgh city council, said: “The council took direct control of the tram project in 2011 at a point when it was clear a change of direction was needed.

“Following the council decision on 2 September 2011, construction is now proceeding in line with the revised budget and programme. New governance arrangements were put in place and the Council brought in professional project management expertise and agreed to wind down Tie Limited, as was reported on 25 August 2011.

“There was a significant cost in resolving the issues with Tie and putting in place more effective control of the project.”

A Scottish Government spokesman said: “Scottish ministers expect all public bodies to operate within the tax system and in the interests of value for public money.”