Offshore employment intermediaries will not be able to avoid PAYE and NIC
HMRC's latest consultation document, 'Offshore Employment Intermediaries', tackles the subject of the use of offshore employers of workers based in the UK to avoid NIC and employment taxes.
Over recent years HMRC have seen a growing use of offshore employers using UK workers who are working for UK based companies. Whilst the Revenue accept that there can be legitimate commercial reasons for these structures some businesses are using them to avoid paying PAYE and NIC and in some industries their use has become widespread.
The consultation comes off the back of the Budget announcement that the Government intended to strengthen the legislation in respect of offshore employment intermediaries and will run for 10 weeks up until 8th August. After the consultation primary NIC legislation will be included in the National Insurance Bill that is planned to be introduced to Parliament in September, with the tax part of the proposals being introduced into next year’s Finance Bill.
According to HMRC a growing number of businesses are setting up outside the UK with the intention of avoiding employment taxes and using structures such as:
End client/User of the labour
↑
Intermediary 1
(supplier of labour to end client/user)
↑
Intermediary 2
↑
Intermediary 3
↑
Offshore employer
Sometimes neither the worker nor the ultimate end user of the labour are aware of the structure.
In simple terms the consultation proposes to create an income tax and NIC charge on offshore employers of workers engaged in the UK, as current legislation does not apply to employers based outside the UK. Although offshore employers can volunteer to make payments of PAYE and NIC, existing legislation requires the person in the UK who is the end user of the labour to operate PAYE and NIC even though they are not the worker's employer, subject to meeting certain conditions.
Where an offshore employer fails to account for and pay over the tax and NIC to HMRC, that responsibility will pass to the intermediary business contracting with the end client/user of the labour. Should that intermediary business also default on its new tax and NIC obligations or where no such business exists, then the responsibility will become that of the end client/user.
There will be two exceptions to the proposals. Firstly, where the employer is in the European Economic Area (EEA) and fails to make payments for 3 months, HMRC are able to pursue such employers for the debts. Secondly, companies in the Isle of Man employing workers engaged in the UK already have to pay NIC to the Isle of Man Treasury who then pass this on to HMRC. The NIC aspect of the proposals will therefore not apply here.
The second part of the consultation proposes that intermediary business 1 will be required to maintain information about how all of the workers they place with the end client are ultimately paid and engaged. This means that they will need to know if the worker is engaged:
- through their own company and if so in what capacity;
- through an umbrella company and if so in what capacity;
- through a number of intermediaries but, ultimately self-employed; or
- as an employee of an offshore employer.
As a result of these proposals being implemented, HMRC estimates that it could raise an additional £90 million in revenue by 2018.
The full consultation document can be found by visiting the Offshore employment intermediaries page.
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