New Consultation on Offshore Umbrella Companies

It would seem that HMR&C, with their new consultation on offshore umbrella companies, are not so much plugging a loophole as nailing it shut.

They are concerned that offshore umbrella companies are promoting themselves to recruitment agencies as a legitimate way to avoid Employer’s National Insurance contributions and to contractors as a legitimate way to reduce the tax that they pay. With new legislation, they aim to “provide a level playing field so that the UK businesses that are playing by the rules cannot be undercut by those who are involved in avoidance arrangements”.

The legislative changes that they propose would mean that offshore umbrella companies would become liable for income tax and national insurance contributions but, not only that, if the offshore umbrella company doesn’t then meet its liabilities, the recruitment agency it’s working with will become liable. Basically, if the offshore provider defaults on any of its obligations as an employer for a 3 month period from the first day of employment, the responsibilities for that employee will pass to the recruitment agency as will the historic underpayment of tax and NIC’s. Finally, if that is not enough to deter businesses from working with one of these scheme providers, if the recruiter then doesn’t meet the tax liability, it will be passed on to the end client.

They also propose that, to protect the end client and also to provide better information to HMR&C, the recruitment agency (or first intermediary i.e. the business that contracts with the end client, if there is more than one in the chain) will need to know how the worker is engaged and maintain records of this. They will be expected to know where the workers that were provided to the end client have come from and how they are ultimately paid. HMR&C are proposing a quarterly return for recruitment agencies where the agency worker is employed by an offshore intermediary. This should contain:

•    The name of the worker
•    The worker’s NI number
•    The worker’s address
•    The time that the worker has been engaged through the intermediary/worked for the end client
•    The name of the offshore employer
•    The address of the offshore employer

Records will need to be kept for a period of three years.

Because of the proposed changes to legislation the offshore umbrella company would also have the usual obligations of a UK employer including statutory sick pay and maternity pay and HMR&C have stated that all of the new rules will apply to office holders and not just employees.

The new legislation will not apply to workers who are genuinely internationally mobile but to those who are UK residents, UK domiciled and working in the UK.