Clampdown on offshore payrolls

Budget 2013: The government will end the use of offshore employment companies in tax havens such as Jersey and Guernsey from April 2014.

This confirmed an announcement made by the chief secretary to the Treasury, Danny Alexander about the use of offshore payrolls.

A full consultation will be announced in May. Budget documentation stated that “the government will strengthen obligations to ensure the correct income tax and [national insurance contributions] NICs are paid by offshore employment intermediaries”.

Mark Groom, tax partner at Deloitte, said: “Unless an offshore employer has a place of business in the UK or is required to account for tax or NICc under a treaty, it won’t usually be liable for UK tax or NICs in respect of amounts paid to its employees.”

The government is concerned by the impact on the benefit entitlements of individuals working in the UK but employed by offshore companies, as well as the potential loss of tax and NICs, estimated at roughly £100 million a year.  

As well as teachers and nurses, oil and gas workers are also under the spotlight but the rules relating to workers on the UK continental shelf are more complex. It has long been accepted by HM Revenue and Customs that no liability arises in many of those cases.

Groom said: “It seems likely that the government will want to consider ways to give the existing rules a bigger bite. Currently, those businesses in the UK engaging workers (the end users) supplied by offshore employment companies can be liable for UK tax and NICs, but only in certain circumstances.

“Widening the scope and impact of those rules to make UK end users more clearly liable would be one possibility. However, any new legislation should not impact workers employed and working overseas. 

“Although oil and gas workers were specifically mentioned, the treatment of workers in the North Sea is more complex and remains unclear.”