Measures to manage offshore tax arrangements unveiled following Autumn Statement

RA Now

Government plans to remove a loophole regarding ‘personal service obligation’ – the right to send a substitute for employees working via intermediaries based overseas – have been welcomed by the recruitment sector.

Chancellor George Osborne promised to crackdown on the on the use of employment intermediaries that enable ‘false self-employment’ with the use of “contrived contracts” in the Autumn Statement last week.

The Finance Bill, published on Tuesday, recommends that only the reality of the employment relationship is taken into account when deciding whether someone is self-employed or not.

Currently, if a worker has a contract with an employment intermediary they can be classed as self-employed and liable for tax and national insurance contributions and are not covered by the Agency Worker Regulations.

The amendment to the Finance Bill, due to come into force in April 2014, states the where the worker is subject to control, supervision or direction over the way their duties are carried out, provides their services personally, is remunerated as a consequence of providing their services and receives remuneration not already taxed as employment income, they will be deemed to be employed and the employing agency will be liable for tax and NICs.

“We have long supported initiatives which help to eradicate any potential loopholes – legal or otherwise – and encourage fairer working opportunities,” said Matthew Brown, managing director of giant group.

Managing director of Brookson, Martin Hesketh agreed, highlighting that the measures should not have a detrimental impact on the genuinely self-employed.

“The UK’s flexible workforce is clearly critical to driving the economic recovery, we have long stated this is a key competitive advantage for the UK economy and it is really heartening to see the government now beginning to genuinely recognise this,” he added. “They are committing to supporting enterprise and those who choose to work for themselves, which is a tangible commitment to a significant part of the UK’s flexible workforce.”

However Baker Tilly said the rules could have serious implications for the construction and off-shore oil and gas sectors, stating that they are likely to affect around 200,000 construction workers and 50,000 other self-employed people who are employed via employment agencies.

“In the oil and gas sector, employment of North Sea rig workers by a non-UK entity has legitimately been the normal way of doing things for many years, and those employers with no UK place of business have not been subject to employer national insurance liabilities,” the company said in a statement. “This is to change, with a new liability imposed on the intermediary which ultimately provides the worker to a UK entity.”

The company’s national head of the Employer Consulting Group, Mark Collins, added: ‘These new rules are likely to affect hundreds of thousands of temps and other self-employed workers using employment agencies and will have a disproportionate effect on the construction sector. It will be interesting to see how hard-pressed construction businesses react to these extra costs.”

The consultation will run until 4 February 2014.