Offshore Employment Intermediaries – latest Government proposals

The original consultation document “Offshore Employment Intermediaries” was published on 30 May 2013 and following HM Revenue & Customs (“HMRC”) review, the Government’s latest proposals were published in a “Summary of Responses”
document dated 14 October 2013.

Latest position – general overview

Generally, under the revised proposals drawn up, where the offshore employer contracts to provide services of UK based staff to an UK intermediary company that in turn has a contract with an end user client, the employer’s obligations to account under PAYE for tax and NICs will be given to the UK intermediary company. HMRC has amended its original proposal that would have made the end user of any labour potentially responsible for meeting these PAYE real time reporting obligations, if both the offshore employer and intermediary defaulted. However, where there is no UK intermediary company, the end user of the labour will be responsible for accounting for and paying UK employment tax and NIC.

A separate proposal has been developed for the oil and gas sector, involving a certification scheme for offshore employers and this is discussed further below.

The main winners from these amendments are the end users as under the previous proposals, they were faced with considerable uncertainty as to whether and when they might become liable to account for tax and NICs, whilst often lacking the information needed to assess the risk and meet these compliance obligations.

This latest HMRC document on Offshore Employment Intermediaries does give some indication as to where the PAYE and NIC liabilities will lie, but relevant parties will only be able to finalise their arrangements and determine how any increased costs should be apportioned going forward once the full detail of all relevant regulation is published over the coming
months.

Oil & gas sector activities

Separate proposals have been made for the oil and gas sector, due to the particular complexity of chains of contracts and sub-contracts and confusion as to the status of oilfield licensees under Joint Operating Agreements (JOAs). Under the proposal, responsibility for PAYE and NICs will depend on whether the offshore employer has an associated company, body or agency based in the UK. If so, that UK entity will become responsible for accounting for those taxes.

If there is no associated UK company the oilfield licensee will become responsible. However where the offshore employer properly accounts for PAYE and NIC, it will be eligible to obtain a certificate to that effect from HMRC. If such a certificate is obtained by the offshore employer, then it will continue to have responsibility for accounting for UK PAYE and NIC and, in the case of any default by the offshore employer, HMRC will be unable to pursue the oilfield licensee for any underpaid duties, unless the certificate is revoked.

Overall, oilfield licensees may retain a PAYE and NICs liability risk in some circumstances, but the introduction of the proposed certification scheme will mitigate the risks and the need for due diligence in some cases. Where the offshore employer has no association with a UK entity, oilfield licensee companies operating on the UK Continental Shelf will no doubt want to ensure that where possible any offshore employers, with whom they contract with directly, do have this certification and that robust contractual indemnities are in place.

Mariners

The Government intends that existing arrangements in respect of “mariners” will largely remain with the exception of workers on fixed and floating platforms. HMRC comments that the forthcoming NIC regulations will be carefully drafted to exclude “recognised mariners” from its effects. In particular, those employees working on vessels wholly for the transport of supplies or safety purposes are to be entirely excluded from the revised legislation.

Secondary (employer) NIC – cost implications

It is apparent that the forthcoming changes to existing legislation will create a position whereby secondary NIC will become payable in many circumstances where none is properly due currently under certain existing offshore employment arrangements. By inference, this will include situations involving employees who are not “recognised mariners” and who are working on fixed and floating platforms.

Next steps – legislative changes

HMRC is now embarking on amending and strengthening existing legislation to “make it clearer and more effective”, in time to apply from 6 April 2014. It will not be until all of the relevant tax and NIC regulation changes are published that employers and intermediaries will have absolute certainty as to who is responsible for exactly what in PAYE and NIC compliance terms.

Employer Solutions at AAB

Our experienced Employer Solutions team of tax and payroll professionals is well equipped to support businesses in a number of ways including: making payroll preparations to deal with the changing PAYE and NIC default positions needed from 6 April 2014, obtaining certification from HMRC or in addressing historic PAYE compliance investigations by HMRC that relate to offshore employment arrangements in operation to date.

For more information on Offshore Employment Intermediaries contact Gordon Robertson, Tax Senior Manager Gordon.robertson@aab.co.uk