Punam Birly explains the latest move to tackle avoidance of income tax and NICs
On 30 May, HMRC published the consultation document Offshore employment intermediaries, which proposes new legislation to tackle, in HMRC’s view, the increasing number of offshore employers avoiding NIC and employment taxes for UK workers.
What is proposed?
From 6 April 2014:
Why introduce these rules?
For HMRC, the current rules present a loophole for employers wanting to avoid the payment of employer’s NIC. Whilst in many cases, the offshore employer makes voluntary payments of income tax and employee’s NIC, some offshore employers will claim there is no requirement to pay employer’s NIC, on the basis that the offshore employer is not present, resident nor has a place of business in GB. These employers argue that the host employer rules do not apply as there is no requirement for the personal service of the worker to be supplied in the UK.
Do these proposals apply to offshore employers in all countries?
HMRC already has the power to seek the payment of employer’s NIC from offshore employers covered by the EU social security rules (by virtue of EU Regulation 987/2009, art 21). HMRC cannot enforce this requirement against non-EU employers, e.g. those based in Jersey and Guernsey.
Who will be affected?
Initial press comments referred to the supply of teachers, nurses and workers in the oil and gas industry. However, these changes will impact all industries where an offshore company is used to provide labour through composite services arrangements. The number of companies involved and the supply chains of each of those companies operating in this oil and gas industry are complex. It’s not always clear where commercial contracts have been negotiated on the basis of reduced NIC costs from composite services arrangements.
HMRC will define the end client for the industry as the licensee of the oil field. However, there may be joint ventures in respect of oil fields, so there may not be a single end user.
Mariners enjoy NIC concessions when employed by offshore companies. HMRC has long accepted that this assists maintaining industry competitiveness. However, HMRC would like to clarify that workers on floating platforms can no longer qualify as mariners for the NIC rules. HMRC has not yet set out how it might achieve this; it may amend the definition of mariner or the continental shelf rules. What is clear is that these rules will impose change and are aimed at reversing the decision in favour of the taxpayer, in the Special Commissioners case of Oleochem (Scotland) Ltd v HMRC [2009] STC (SCD) 205.
What should companies do now?
What’s next?
The primary NIC legislation will be included in the NI Bill in September 2013. The tax proposals will be introduced in the Finance Bill 2014.
See details of the consultation. The closing date for comments is 8 August 2013.
Punam Birly explains the latest move to tackle avoidance of income tax and NICs
On 30 May, HMRC published the consultation document Offshore employment intermediaries, which proposes new legislation to tackle, in HMRC’s view, the increasing number of offshore employers avoiding NIC and employment taxes for UK workers.
What is proposed?
From 6 April 2014:
Why introduce these rules?
For HMRC, the current rules present a loophole for employers wanting to avoid the payment of employer’s NIC. Whilst in many cases, the offshore employer makes voluntary payments of income tax and employee’s NIC, some offshore employers will claim there is no requirement to pay employer’s NIC, on the basis that the offshore employer is not present, resident nor has a place of business in GB. These employers argue that the host employer rules do not apply as there is no requirement for the personal service of the worker to be supplied in the UK.
Do these proposals apply to offshore employers in all countries?
HMRC already has the power to seek the payment of employer’s NIC from offshore employers covered by the EU social security rules (by virtue of EU Regulation 987/2009, art 21). HMRC cannot enforce this requirement against non-EU employers, e.g. those based in Jersey and Guernsey.
Who will be affected?
Initial press comments referred to the supply of teachers, nurses and workers in the oil and gas industry. However, these changes will impact all industries where an offshore company is used to provide labour through composite services arrangements. The number of companies involved and the supply chains of each of those companies operating in this oil and gas industry are complex. It’s not always clear where commercial contracts have been negotiated on the basis of reduced NIC costs from composite services arrangements.
HMRC will define the end client for the industry as the licensee of the oil field. However, there may be joint ventures in respect of oil fields, so there may not be a single end user.
Mariners enjoy NIC concessions when employed by offshore companies. HMRC has long accepted that this assists maintaining industry competitiveness. However, HMRC would like to clarify that workers on floating platforms can no longer qualify as mariners for the NIC rules. HMRC has not yet set out how it might achieve this; it may amend the definition of mariner or the continental shelf rules. What is clear is that these rules will impose change and are aimed at reversing the decision in favour of the taxpayer, in the Special Commissioners case of Oleochem (Scotland) Ltd v HMRC [2009] STC (SCD) 205.
What should companies do now?
What’s next?
The primary NIC legislation will be included in the NI Bill in September 2013. The tax proposals will be introduced in the Finance Bill 2014.
See details of the consultation. The closing date for comments is 8 August 2013.