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Eleven posts at Hammersmith and Fulham Council, in west London, were filled in this way, including Nick Johnson, the chief executive of its housing arm, whose company was paid more than 900,000 over a four-year period.

The council was so concerned about Mr Johnsons payment arrangement that it commissioned a report by the accountancy firm PricewaterhouseCoopers on whether it risked facing a bill for unpaid tax.

The report said: Normally the position of chief executive is considered to be an office holder.

"On that basis there would be a medium-to-high risk that there was a PAYE obligation on Hammersmith and Fulham Homes Ltd."

Craven District Council, North Yorks, paid eight staff through limited companies, while St Edmundsbury Borough Council, Suffolk, and Ashfield District Council, Notts, each had five.

Several councils admitted paying staff through external companies but were unable to provide figures, while others were unsure.

Some officials may be paying PAYE through their limited companies but the arrangements mean they have the option to pay themselves via dividends, which are taxed at a lower rate.

They also potentially allow them to pay less in national insurance contributions.

Mrs Hodge said her committee would pursue the issue, adding: This is a tax avoidance scheme which is totally wrong.

"When you are a public servant it's not right you should be paid in a way that avoids tax.

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Dozens of council staff paid through limited companies to 'avoid tax'