The government will strengthen legislation to block tax avoidance involving offshore intermediaries that is estimated to cost £100 a year, the government announced on Saturday, four days ahead of the Budget.
Last December’s autumn statement said the government would undertake an internal review of offshore intermediaries being used to avoid tax and NICs and provide an update at Budget 2013.
Danny Alexander, chief secretary to the Treasury, told the Scottish Liberal Democrat conference on Saturday: ‘By running their payroll through an offshore location like Jersey, these shadowy intermediaries can avoid paying employment tax, at a cost to the exchequer of around £100m a year – and rising. Completely counter to the spirit of the law. Neither right nor fair.’
The £100m figure has been ‘signed off’ by the independent Office for Budget Responsibility, the Financial Times reported.
The Treasury said in a press release: ‘These intermediaries are corporate forms put between UK workers and a UK business. They are based offshore, often in tax havens, and are used to avoid employment taxes. The problem is growing: HMRC now estimate that at least 100,000 workers are being employed through an offshore intermediary. In many cases the employee is unaware that their payroll is located offshore and tax is being avoided.
‘The government will therefore give HMRC the powers it needs to collect full employment taxes for UK workers. Employment taxes will be payable for all employees in the UK, irrespective of where their payroll is located. Cracking down on this avoidance will benefit the exchequer by almost £100m a year.’
The Treasury defined an offshore intermediary as a structure put in place between a worker and a business using their labour. ‘By having no presence, residence or place of business in the UK it is not currently obliged to remit payroll taxes or pay NICs. Some are in place for legitimate commercial reasons but many are put in place with a view to avoiding tax, in particular employer NICs,’ it said.
HMRC will consult in May on the measure’s design and operation. Legislation will be included in the Finance Bill 2014, and take effect on 1 April 2014.
Sean Drury, head of employment taxes at PwC, said: ‘We hope sensible legislation will follow to ensure that UK employees, working exclusively in the UK for the benefit of companies located here, are all treated the same for employment taxes purposes irrespective of the location of their payroll.
‘Offshore employment intermediaries remain important for businesses needing internationally mobile workers who can be based all over the world, especially in the oil and gas sector. Care will be needed to prevent any unintended consequences for businesses with important commercial reasons for using offshore employment intermediaries. It would be a shame if we rushed through the consultation process resulting in the UK becoming less attractive as a hub for some of our key industries.’
The government will strengthen legislation to block tax avoidance involving offshore intermediaries that is estimated to cost £100 a year, the government announced on Saturday, four days ahead of the Budget.
Last December’s autumn statement said the government would undertake an internal review of offshore intermediaries being used to avoid tax and NICs and provide an update at Budget 2013.
Danny Alexander, chief secretary to the Treasury, told the Scottish Liberal Democrat conference on Saturday: ‘By running their payroll through an offshore location like Jersey, these shadowy intermediaries can avoid paying employment tax, at a cost to the exchequer of around £100m a year – and rising. Completely counter to the spirit of the law. Neither right nor fair.’
The £100m figure has been ‘signed off’ by the independent Office for Budget Responsibility, the Financial Times reported.
The Treasury said in a press release: ‘These intermediaries are corporate forms put between UK workers and a UK business. They are based offshore, often in tax havens, and are used to avoid employment taxes. The problem is growing: HMRC now estimate that at least 100,000 workers are being employed through an offshore intermediary. In many cases the employee is unaware that their payroll is located offshore and tax is being avoided.
‘The government will therefore give HMRC the powers it needs to collect full employment taxes for UK workers. Employment taxes will be payable for all employees in the UK, irrespective of where their payroll is located. Cracking down on this avoidance will benefit the exchequer by almost £100m a year.’
The Treasury defined an offshore intermediary as a structure put in place between a worker and a business using their labour. ‘By having no presence, residence or place of business in the UK it is not currently obliged to remit payroll taxes or pay NICs. Some are in place for legitimate commercial reasons but many are put in place with a view to avoiding tax, in particular employer NICs,’ it said.
HMRC will consult in May on the measure’s design and operation. Legislation will be included in the Finance Bill 2014, and take effect on 1 April 2014.
Sean Drury, head of employment taxes at PwC, said: ‘We hope sensible legislation will follow to ensure that UK employees, working exclusively in the UK for the benefit of companies located here, are all treated the same for employment taxes purposes irrespective of the location of their payroll.
‘Offshore employment intermediaries remain important for businesses needing internationally mobile workers who can be based all over the world, especially in the oil and gas sector. Care will be needed to prevent any unintended consequences for businesses with important commercial reasons for using offshore employment intermediaries. It would be a shame if we rushed through the consultation process resulting in the UK becoming less attractive as a hub for some of our key industries.’
