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Offshore employment regulations are in for a shake-up, so make sure your employer clients are up to speed
The Government has published its consultation document on the use of offshore employment intermediaries and it has significant implications for employers that use such structures. The draft legislation was published on 30 May this year and the consultation period ends on 8 August. The changes are intended to take effect from the next tax year.
The Government’s concern is that since the 1990s there has been a rise in the number of workers “based in the UK, working in the UK for UK-based companies”, but employed by offshore employers. The proposal “at its simplest, is to create an income tax and NICs charge on offshore employers of workers engaged in the UK”.
Currently, where an employer is based offshore there is no obligation to operate PAYE or account for employer NIC. There are further provisions under which a UK-based end-user of the labour supplied from such an employer may be required to account for such taxes as the “host” but only where a “personal service” is supplied. This has led to structures whereby the offshore employer is providing a “composite” service, including things such as tools and equipment, thereby taking them outwith the host regulations.
In addition, offshore-based employers of mariners are excluded from the requirement to account for employer NIC even where there is a UK host employer. This has particular relevance to the oil and gas sector. In the Oleochem case, back in 2008, a wide definition was given to the word ‘mariner’. The case concerned chemists engaged on a floating platform. They were deemed to be mariners and, as a consequence, there was no requirement to deduct employer NIC.
With regard to oil and gas, the proposal is that all workers will come within the scope of the legislation. In basic terms, this will mean offshore employers being liable for the payment of employer NIC for employees based in the UK or working on the UK continental shelf. They will also have to operate PAYE.
The consultation document also has controversial proposals – the liability to account for these taxes will transfer to an intermediary that contracts with the end-user if the offshore employer defaults. Ultimately, the liability will then pass to the end-user. In the oil and gas sector, the end-user will be the licensee of the field where the worker is based.
So what should employers, intermediaries and end-users do in the meantime? Consideration will have to be given to the benefit of maintaining offshore employment structures and whether it would be beneficial for such employees to be engaged by UK entities. That could give rise to issues with regard to the transfer of such employment contracts – in particular, TUPE considerations. Existing commercial arrangements should also be looked at carefully. Many have been priced on the basis that there are no employer NIC costs.