In a nutshell Offshore Providers of Payment Services can be categorised as High Risk, High Return and with a very short Shelf-Life. In a game of ‘cat and mouse’ Providers have been setting up new schemes every year to help people avoid paying the full amount of tax due on their earnings whilst waiting for a legal challenge from HMRC to shut them down.
This has certainly been true for many years now and has resulted in HMRC recently, after high profile companies and individuals were lambasted for deemed tax avoidance even though they were not breaking any current laws, sending out a proposal document to address some of the issues that these cases have highlighted.
In particular HMRC has seen a growing use of offshore employers to employ UK workers who are working for UK based companies. This can be for legitimate commercial reasons of course – for example workers on International secondments.
However, some businesses are using these structures to avoid paying employment taxes specifically including National Insurance for their UK-based workers. This is seen as not fair as often workers engaged in this way are unaware that their access to some contributory social security benefits (e.g. State pension) may have been put at risk. These structures are increasingly being marketed and promoted as a legitimate way to avoid National Insurance. In several industries their use has become widespread.
The proposal put forward in the consultation at its simplest is to create an income tax and NICs charge on offshore employers of workers engaged in the UK. The offshore employer will be liable in the first instance for deducting income tax and NICs from the worker and will be the secondary contributor, making them liable to pay employer (secondary) NICs and statutory payments (e.g. statutory sick and maternity pay) to the worker and deduct student loan payments.
If the offshore employer fails to account for and remit to HMRC the tax and NICs due, the employer’s responsibilities (with regard to tax and NICs) will move to the intermediary business contracting with the end client/end user of the labour to supply labour, or a service that includes the provision of labour. In the case that there is no intermediary business, or the intermediary business defaults on its new tax and NICs obligations, this responsibility will move to the end user of the labour/end client.
This new legislation will not be applied retrospectively, unfortunately, but will come into place from April 2014.
Here at the cps group we never have and never will have any association with offshore intermediaries nor will we set up our own offshore service either – guaranteed.
If you want to ask any questions about any offshore schemes and the risks involved for you personally then please call 0203 582 7950 and ask to speak to our Compliance Manager.