Radical change to new offshore PAYE rules

We reported back in August the proposal that employers who are offshore would be responsible for accounting to HMRC under PAYE for all NICs and income tax of their workers.  New debt transfer rules were proposed that would apply if the PAYE was not paid over – the liabilities would then transfer onshore to the intermediary closest to the end-user (typically an employment agency) or directly to the end-user itself.  See our news article for the full details.

The consultation on these proposed new rules has now finished and it looks as though the final legislation will look very different to the proposal, and will have a much more direct and immediate impact on any agency or end-user who engages a worker involved in this type of arrangement.

Those that responded to the consultation flagged up concerns with the administrative burdens and complexity of the proposals.  In addition there was concern that offshore employers outside UK jurisdiction might simply not bother to comply with PAYE if they knew that ultimately their liabilities would be transferred elsewhere.  We are not sure whether this concern is actually legitimate: it would be committing commercial suicide to divert liability to your client, or even their client; and one wonders what effect the debt transfer rules could have on a business outside the UK jurisdiction with no imperative to comply with the PAYE rules in the first place.

Nevertheless HMRC has decided to dispense with the debt transfer rules and simply impose an immediate obligation directly upon the intermediary closest to the end-user (“Intermediary 1”) to operate PAYE.

The revised proposal now therefore entails the following:

  • Intermediary 1 will be made wholly and immediately responsible for accounting for the tax and NIC obligations of all workers who are ultimately engaged by an offshore business.
  • There will be an ‘RTI-light’ system of quarterly returns.  The proposal refers to this as a “simple quarterly electronic return” but the format and extent of information is not yet defined.
  • There will be a separate specific scheme for the oil and gas sector.

This has potentially significant implications for employment agencies.  As from next April it is highly likely to be agencies that become responsible for operating PAYE on workers where there is an offshore business in the chain.

This leaves a whole host of questions unanswered, and until the new updated draft legislation is available we will not know:

  • Precisely what degree of responsibility an agency will have for investigating whether a worker is using an offshore intermediary.  It can be difficult or impossible to establish the position, particularly in circumstances where an offshore intermediary is once or twice removed from the agency, or arrangements are obfuscated from the agency.
  • Whether there is an ongoing obligation after a worker has registered with an agency if the position changes and a worker then starts using an offshore intermediary.
  • To what extent the operation of PAYE by the offshore intermediary will satisfy the agency’s obligation – including where the responsibility lies if there are errors in operation.
  • How the agency will establish the level of deductions it needs to make.  Payments along the contractual chain include amounts over and above the ultimate payment to the worker.
  • Whether an agency can rely on the usual defences available in relation to PAYE: i.e. whether the tax liability will be transferred to the worker if the agency takes reasonable care.

The new draft legislation is set to be released over the next couple of months.  We will keep be keeping close tabs on the development of this proposal and will of course keep you informed.  In the meantime the warning not to react until matters are final still applies.

If you have any immediate queries please do not hesitate to contact the Chartergates team.

Published: 11.18.13 - Posted In: Latest News