The End for Offshore Employment Intermediaries?
Lisa Keeble, managing director for ContractorUmbrella, has written an article in response to HMRC’s publication of guidance on its proposals to tackle tax avoidance
HMRC yesterday published updated guidance on its proposals to stamp out tax avoidance through the use of offshore employment intermediaries. As from April 2014, the accounting liability for PAYE income tax and national insurance contributions for contractors using offshore intermediaries will lie with the first intermediary in the chain that ultimately ends with the client. In the vast majority of cases this will be a recruitment agency.
HMRC’s reasoning for this is that, rather than bringing in new legislation, they would prefer to strengthen existing legislation. They commented:
“As HMRC’s powers do not extend offshore, Intermediary 1 will be made wholly and immediately responsible for accounting for the tax and NIC’s obligations of all workers who are ultimately engaged by an offshore business”.
Payments and supporting information will be made through Real Time Information.
This means that, despite what was previously suggested, there is no chance that a tax debt would be passed from the recruitment agency to the end user.
Although they will be deferred for 12 months following the introduction of the proposed changes, penalties will be imposed, by HMRC, for incorrect or incomplete returns.
This will place a huge administrative burden on recruitment agencies whose due diligence processes will have to be strengthened to ensure that intermediaries in their particular chain are not engaging with an offshore intermediary. Any umbrella companies that they work with either indirectly or directly should be able to evidence that they pay full income tax and National Insurance contributions but it is inevitable that new processes will need to be put in place to ensure compliance.
The Government is still debating whether or not this updated legislation will applies to PSC’s and whether or not it will tax precedence over the IR35 legislation. It is assumed that, if PSC’s are included, any attempt to use an offshore employment intermediary for the purposes of avoiding tax, would automatically force the contractor into a position where they would have the same tax liabilities as if they were inside IR35 therefore rendering the scheme useless for their purposes.
In addition to her role as MD for ContractorUmbrella, Lisa Keeble is a founder member of AllUmbrellaCompaniesAreEqual.
Find out more about Contractor Umbrella at www.contractorumbrella.com and AllUmbrellaCompaniesAreEqual at www.allumbrellacompaniesareequal.com.