HMRC have issued a consultation document - Offshore employment intermediaries - on the use of offshore employers of workers based in the UK to avoid national Insurance and employment taxes, for comment by 8 August 2013.

The consultation sets out the government's plans to create an income tax and NICs charge on offshore intermediaries employing workers in the UK and, in the case of a default, moving this charge to an onshore engager of the labour, in specified circumstances. The second part of the consultation relates to requirements to keep records and file returns with HMRC.

This move aims to counter the increasingly widespread use of offshore employers to employ UK workers who are working for UK based companies with the primary purpose of avoiding employment taxes, including NICs, for their UK-based workers. These businesses are located offshore but supply workers based in the UK to UK based businesses. The consultation sets out plans to provide a level playing field so that UK businesses that are compliant cannot be undercut by those who are involved in such avoidance arrangements.

After the consultation period, it is expected that the tax aspect of these proposals will be introduced into Finance Bill 2014.

Following the release of the consultation, Punam Birly, tax partner, KPMG UK, said: ‪'The changes announced today have potentially sweeping and wide-ranging effects across a whole raft of employers, most notably in the health, education and oil and gas sectors.

‪ 'It is crucial that these companies urgently review their staff supply and commercial arrangements to gauge their exposure and in some cases, determine who will pay these increased costs as well as take responsibility for the increased administrative burden the changes will bring! If no-one in the supply chain pays the tax bill, ultimately the end-users may well be liable.'

She added that the changes are not only about the technical application of the rules, but the practicalities of HMRC enforcing the payment of tax and NIC in countries outside of their jurisdiction. The changes will see the UK 'becoming more consistent with other EU tax authorities which pursue the taxpayer linked to the offshore employer in the event that the offshore employer fails to meet its employer obligations.'

More details are available from Gov.uk

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