The government has announced plans to tighten its rules on 'off-payroll' positions in the public sector, to weed out possible tax avoidance cases, which will have a significant impact on IT contractors.

Following a review of government departments and their arm's length bodies, the chief secretary to the Treasury, Danny Alexander, has found that more than 2,400 key public sector workers were employed off payroll, with more than 40 percent (at least 960) of these being IT contractors.

In some cases, contractors (three percent, or 72 people) have been employed for more than 10 years.

Each of the departments has published a list of off-payroll employees who were paid more than the minimum senior civil servant salary of £58,200.

In the Cabinet Office for example, there are 19 IT contractors listed. The highest daily rate was earned by the PSN (public sector network) technical specialist lead, from Capita Resourcing, who has been making £1,099 a day for nearly a year.

Meanwhile, someone with the job title of 'CO ICT', from Evolve Business Consultancy, has been employed for more than 10 years, on an annual salary of £150,000 to £159,999. The department said that it would be seeking a permanent appointment for this role "in the near future".

There are also five IT contractors at HM Revenue & Customs (HMRC), including an interim chief technology officer at the Valuation Office Agency, from LA International, who is earning £600 to £699 a day.

Such daily rates were not uncommon, as the review found that around 70 percent of all contractors paid on a daily basis cost more than £400 a day.

Although the review recognised that these off-payroll workers were not necessarily paying the incorrect amount of tax, the government wanted to tighten the rules around contractors to make sure that tax avoidance cases do not arise in the future.

It recommended, for instance, that the most senior staff must be on the payroll, unless there are exceptional temporary circumstances.

In addition, departments will be able to seek assurance from contractors with agreements lasting more than six months and costing more than £220 a day that their tax obligations are being met.

If these rules - to be implemented within three months - are not met, departments would be liable to financial sanctions.

Alexander said: "The opaque nature of those [off payroll] engagements has created the conditions where tax avoidance could be taking place.

"We have to bring an end to the 'don't ask, don't tell' approach to this issue. That's why I am announcing these new, tighter rules on off-payroll appointments in government and passing the detailed findings of the review to HMRC."