Offshore employment intermediaries face tax charge
Clamping down on offshore employment intermediaries who market themselves to UK workers as a legitimate way to avoid tax is the “next step” to take now that IR35 has been strengthened, the government has announced.
In light of new rules on IR35, disguised remuneration and EBTs, Danny Alexander said a “level playing field” on employment taxes would only be completed if offshore employers of workers engaged in the UK faced an income tax and NICs charge
Opening a consultation on legislation to create such a charge, the chief secretary to the Treasury said the offshore employer would in future be liable for deducting income tax and NICs from the worker - and will be liable to pay employer NIC and statutory payments.
The proposals, of which the tax element will be introduced in Finance Bill 2014, are designed to head off the “widespread” use in some sectors of structures with no presence, residence or place of business in the UK which see UK employment taxes, including NI, avoided.
Although the government acknowledged that some are in place for “legitimate commercial reasons”, these corporate, offshore structures which are used by 100,000 UK workers (not all of them knowingly) deprive the exchequer of almost £100m a year.
The consultation adds that the new requirements for the offshore employer to deduct income tax and employee NICs - in addition to paying employer NICs - will apply equally to office-holders as they do for employees.
Businesses, individuals and staffing suppliers now have 10 weeks to tell the government whether the requirements will have “any unintended consequences”, including any practical difficulties to “genuine commercial arrangements.”
They can also respond to proposed record-keeping requirements facing the offshore intermediary, which will need to be able to produce records for all the workers they placed at end-clients in the last three years, including details of whether the worker used their own company, an umbrella company or was self-employed.
Of the envisioned record-keeping requirements on the intermediary, the government reflected: “For the first year, after the new regime is introduced, it is proposed that there will be no penalties for making late returns or for providing incomplete information on the return.
“When the penalty regime is introduced in 2015/16 there will still be mitigations for incorrect returns where a business has taken reasonable care to assure itself that the information it is returning to HMRC in respect of workers who are employed offshore is correct.”
For that tax year, the exchequer is expecting to collect £85m from the measure (rising to £90m in 2017-18), which the government predicts will have only a “negligible” impact on businesses, specifically on their administrative burdens from having to assure their supply chain.
Writing in the consultation, due to close on August 8th, Mr Alexander said: “In the last few years we have made a great deal of progress in preventing the avoidance of employment taxes with the disguised remuneration rules, the employee benefit trust settlement opportunity and the changes to the intermediaries (IR35) legislation.
“This is the next step in creating a level playing field for all businesses engaging workers in the UK and stopping unfair arrangements. We will continue to seek out avoidance of employment taxes and act to stop it.”