Offshore employment companies

By Tolley in association with Paul Tew

The following Employment Tax guidance note by Tolley in association with Paul Tew provides comprehensive and up to date tax information covering:

  • Offshore employment companies
  • Rules applicable where employee is employed by or through an offshore intermediary
  • Simplified agency worker rule
  • Employment intermediaries: reporting requirements
  • Workers employed on the UKCS

In the past, HMRC has investigated a number of attempted avoidance schemes involving offshore employment intermediaries. Those schemes were mainly aimed at avoiding secondary (employer) Class 1 NIC. HMRC considered most, if not all, of the schemes to be flawed, and it continues to challenge them, although enquiries can be complex. Against this backdrop, HMRC conducted a review during 2013 as to how best to change the rules relating to offshore employment intermediaries being used to avoid tax and NIC to make enforcement easier. This focused in particular on the deliberate hiring via an offshore entity (agency) to take advantage of the rule that payment of contributions cannot be enforced where the employer has no place of business in the UK.

As a result of the review and subsequent consultation process, the government introduced legislation effective from 6 April 2014 to prevent avoidance in the payment of secondary NICs by offshore umbrella and agency companies, and where workers are employed on the UK Continental Shelf (UKCS) (in particular, those in the oil and gas industries).

This means that in respect of offshore intermediaries, the rules where an agency or UK ‘host’ business were involved have been very much strengthened. However, those UK ‘host’ businesses already compliant and deducting PAYE and Class 1 NIC should not be materially affected by the revised legislation. The thought process behind the legislation is that where PAYE and NIC have not been correctly deducted by an engager, HMRC will be more easily able to ascertain the facts in each case, in order to assist enforcement and ensure a clear hierarchy between the ‘host’ employer rule and the agency rule.

Rules applicable where employee is employed by or through an offshore intermediary

The Social Security (Categorisation of Earners) Regulations 1978, SI 1978/1689 were amended with effect from 6 April 2014, making changes to who is responsible for

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