HMRC tighten the rules on offshore employers and transfer of assets abroad

HMRC has published two key documents in relation to international tax. The first relates to the taxation of offshore employment intermediaries. The second relates to the transfer of assets abroad legislation. In essence, both outline HMRC’s intention to tighten the rules to ensure greater tax and NIC compliance.

Offshore Employment Intermediaries

Over recent years there has been a perception of growing use of offshore employers to avoid paying employment taxes for their UK-based workers. In the 2013 Budget the Government announced that they would “strengthen obligations to ensure the correct income tax and NICs are paid by offshore intermediaries”. A consultation document was subsequently released on 30 May 2013 and on 5 August draft NIC legislation was published in this regard (the tax legislation will follow in due course).

The draft legislation seeks to address situations where an offshore employer supplies workers based in the UK to either:

  • An ‘end client’ in the UK or
  • An intermediary (or number of intermediaries) in the UK who then supply labour to the end client in the UK.

Broadly, the draft legislation provides that:

  • Offshore employers of workers engaged in the UK are subject to an income tax and NIC charge.
  • The offshore employer will be liable in the first instance for deducting income tax and NICs from the worker and paying employer’s NIC.
  • If the offshore employer fails to account for tax and NIC due the employer’s responsibilities with regard to tax and NIC will move to the intermediary business contracting with the end client.
  • In the case where there is no intermediary business or the intermediary business defaults on its tax and NIC obligations the responsibility will move to the end client.

There are two exceptions to these rules. The transfer of historic debt and future liabilities will not occur if the employer is in the EEA where HMRC can already pursue debts through the reciprocal NIC arrangements which impose a requirement on the EEA employer to account for NIC. A similar exception applies in relation to employers in the Isle of Man who under a current joint social security agreement have to account for UK NIC.

The effect of this draft legislation is that from April 2014 the end client will be held responsible for PAYE and NIC where HMRC are unable to collect the PAYE and NIC from the offshore employer or an intermediary business. It will not be possible for the end client to escape charge by arguing that the worker was not subject to the control of the end client. This legislation will not only affect those participating in various ‘tax schemes’ but will also affect organisations taking on workers from reputable UK intermediaries even if there is no tax avoidance motive.

Transfers of Assets Abroad Legislation

As part of its consultation process, HMRC published draft guidance on the transfer of assets abroad legislation on 5 August to replace the current guidance in the International Manual.

The guidance, among other things, confirms the following:

  • Spouses: Generally speaking “HMRC will not use transfer of assets to charge tax on one spouse or civil partner in respect of income arising to the other spouse or civil partner, where that spouse or civil partner has made a transfer of assets but is, for example, outside the charge because say of the application of non-UK domicile provisions.”
  • New exemption: A new exemption is available for genuine transactions (see our previous story).

If you would like further information in relation to offshore employment intermediaries and the transfer of assets abroad legislation please contact the TaxDesk on 0845 4900 509 and ask for Priya Dutta.