The Government has today announced that it will strengthen legislation to block tax avoidance involving offshore intermediaries.
These intermediaries are corporate forms put between UK workers and a UK business. They are based offshore, often in tax havens, and are used to avoid employment taxes. The problem is growing: HMRC now estimate that at least 100,000 workers are being employed through an offshore intermediary. In many cases the employee is unaware that their payroll is located offshore and tax is being avoided.
The Government will therefore give HMRC the powers it needs to collect full employment taxes for UK workers. Employment taxes will be payable for all employees in the UK, irrespective of where their payroll is located. Cracking down on this avoidance will benefit the Exchequer by almost £100 million a year. HMRC will consult after the Budget on the design and operation of these measures.
1. Autumn Statement 2012 announced that HMRC would review the use of offshore employment intermediaries.
2. An offshore intermediary is a structure that is put in place between a worker and a business using their labour. By having no presence, residence or place of business in the UK it is not currently obliged to remit payroll taxes or pay NICs. Some are in place for legitimate commercial reasons but many are put in place with a view to avoiding tax, in particular employer NICs.
3. HMRC will issue a consultation document on the design and operation of the measure in May this year. Legislation will be included in the 2014 Finance Bill. It is envisaged that the new measures will come into force on 1 April 2014.