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A number of councils said they did not know whether all of their permanent staff were paid through PAYE but acknowledged that some were employed via limited companies.

Hammersmith and Fulham council said 11 posts were filled in this way while Craven in North Yorkshire had eight and St Edmundsbury in Suffolk and Ashfield in Nottinghamshire each had five.

Some of the officials employed in this way may be paying PAYE through their limited companies but have the option to pay themselves via dividends, which attract a lower tax rate. They can also pay national insurance contributions at a lower rate.

Margaret Hodge said she would pursue the matter.

"This is a tax avoidance scheme which is totally wrong," she told the BBC. "Where you are a public servant it's not right you should be paid in a way that avoids tax."

The investigation found that Nick Johnson became chief executive of Hammersmith and Fulham Homes Ltd in early 2008, with his 900-a-day fee paid into his company Davies Johnson Ltd - having taken up the post after retiring as chief executive of Bexley council in south London.

When opposition councillors raised concerns, accountancy firm PricewaterhouseCoopers was asked to report on whether he the council risked facing a bill for unpaid tax.

In a confidential report seen by the BBC, it found that Mr Johnson's position meant he would normally be considered an "office holder" meaning that there was a "medium-to-high risk that there was a PAYE obligation" on the council.

Hammersmith and Fulham Council said in a statement that it did not believe Mr Johnson was required to be on its payroll and that the "procurement and deployment" of a total of 11 individuals through "personal service companies" was "effectively controlled and monitored" with the risk of tax and national insurance non-compliance "minimised".

Sir Merrick Cockell, chairman of the Local Government Association, said councils adhered to strict tax legislation and were obliged to employ skilled staff in a way to provide good value to residents.

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Council officials use 'tax avoidance schemes'