New debt transfer legislation unveiled

The Offshore Employment Intermediaries Consultation

HMRC have been busy consulting on new legislation to place an obligation on offshore intermediaries to deduct PAYE and NICs on payments made to individuals who are supplied to work or provide services in the UK.

The consultation came to an end on 8 August 2013 and HMRC have recently published draft legislation to help govern this issue.  We look briefly at the draft rules but it should be kept in mind the rules are subject to change and require enactment.

The draft legislation can be found here and imposes an obligation on the offshore intermediary to operate PAYE and pay over any income tax and national insurance (including Employer’s secondary contributions) to HMRC.

Where the offshore intermediary fails to pay any liability to HMRC and the period of default is 30 days or more HMRC can issue a notice to a UK entity that is also within the contractual chain.  The initial transfer of debt will be to the intermediary that is engaged by the end client, which will usually be an employment agency.

Note the consultation document included a default period of 3 months whereas the draft legislation has included a much shorter period of default.

This key provision is clearly a scare tactic designed to drive an already nervous agency market away from offshore intermediaries.

The draft legislation also sets out the conditions for when the rules for offshore intermediaries will take effect.  The conditions for the legislation to apply are:

• The worker must be an employee of the offshore intermediary (to whom the PAYE regulations do not apply);
• The worker actually works for another person who is resident, present or has a place of business in the UK

If the above conditions are satisfied the legislation applies.

A couple of ‘positives’

The draft legislation makes it quite clear the end client will only be liable for any PAYE and NICs due under the new legislation if the UK intermediary with whom the end client engages becomes insolvent.  Whilst the end client may feel a little safer with such a provision no doubt they will be seeking some form of indemnity from agencies and/or umbrella companies in respect of any such debt when the new legislation is enacted.

The consultation document also mentioned additional quarterly returns an intermediary would need to file for workers it engages that have been supplied by an offshore intermediary, however the draft legislation does not make mention of any such returns.

Of course, this is just draft legislation and as such is likely to be changed and may look significantly different when it eventually comes into force.  The final version is anticipated to come into force as part of the 2014 Finance Bill.