The ICAEW is calling on the government to have a major policy rethink on how PAYE, income tax and NIC payments are handled where offshore employment intermediaries are involved, saying that current proposals are little more than 'tinkering round the edges' and will not resolve the problems.

The comments are contained in the ICAEW Tax Faculty's response to an HMRC consultation announced earlier this year. It says that in many cases, it will not be possible to comply with HMRC's proposals, which will give rise to 'enormous burdens and unquantifiable liabilities'.

The ICAEW warns that: 'Ascertaining and transferring PAYE liabilities and outstanding debts of offshore entities to UK agencies supplying labour to end users, will create an enormous compliance burden and costs for the UK recruitment sector. Agencies will be unable to find out the information that HMRC requires, and they will not have access to HMRC's records to ascertain whether, and if so how much, PAYE has been paid.'

The institute says the system as proposed would make it impossible for agencies to define how they should protect their position against HMRC making them liable for PAYE debts owed by others in the labour supply chain, making it very hard to renegotiate contracts. In addition, it cautions that the proposed rules may not comply with EU, EEA and international treaty obligations.

As an alternative approach, ICAEW says that if the existing NIC legislation covered all supplies of labour rather than personal services only, and was enforced, then this could meet the NIC concerns which the consultation raises. It also wants to see consideration given to making the end user primarily responsible for the PAYE, and obliging UK residents with earnings from an offshore employment to complete a return showing details of the offshore employer and of the entity for which the work was performed.