Latest HMRC crackdown could affect temp workers

Jo Faragher

HM Revenue and Customs last week launched a consultation into closing a tax loophole that allows companies to hire UK staff through an offshore intermediary in order to avoid paying tax and national insurance contributions (NICs). 

The results of the consultation could have a major impact on temporary workers such as teachers, nurses and oil and gas workers, and the agencies that supply them, if these employees (or their agency or umbrella company) choose to use an offshore intermediary to avoid tax liabilities. 

“The existing legislation has been exploited, particularly in certain sectors, allowing companies who are willing to set up offshore arrangements to gain a competitive advantage over those businesses who play by the rules,” the consultation said. “This new legislation that is proposed is intended to level the playing field and ensure that the correct income tax and NICs is paid in respect of all workers in the UK.”

HMRC is also proposing greater monitoring by recruitment agencies and end-hirers where the agency worker is employed via an offshore intermediary. It has warned that any shortfall in tax and NICs by the offshore intermediary may become the responsibility of the recruitment agency or end-hirer if there is a default.

Depending on the outcome of the consultation, which closes in August, HMRC could start issuing penalties in the fiscal year 2015/16.

Umbrella company giant group welcomed the fact any proposed changes would make contract work fairer in the UK. Managing director Matthew Brown said: “The proposed changes will ensure all workers who are eligible will receive a number of benefits including statutory payments due to the correct amount of tax and national insurance being paid.”

Adrian Marlowe, chairman of the Association of Recruitment Consultancies, expressed hope that the consultation leads to greater clarity on the issue of temporary workers’ tax liabilities.

He said: “Given the government’s new focus on tax in relation to temporary workers, a tidy up in this area would be helpful. If successful, it could give security to agency workers in their employment, save huge amounts of time and effort for HMRC and operators in the sector, restore faith within the industry and ensure that correct levels of tax are recovered consistently in line with policy. This must be a target worth aiming for.”