Earlier this month, the government closed its consultation on tax proposals for offshore employment intermediaries. While HMRC collates the submissions and puts together its response, umbrella contractors are still looking into how the changes could affect them.
Under HMRC's plans, intermediaries based offshore will be expected to pay an income tax and National Insurance charge for every one of their workers who is engaged in the UK. If they fail to pay for three months in a row, liability for the charge will move to the intermediary which is contracted to provide labour to the end client, effectively shifting the responsibility onto the recruiter or managed service provider who finds the candidate for the vacancy.
Devised to make sure that offshore employers are liable for deducting the right tax from their workers, the proposals have been widely touted as another step forward in the fight against tax avoidance. While it is generally agreed that offshore tax avoidance has to be tackled, the proposals have come in for a sizeable amount of criticism.
The Association of Professional Staffing Companies (APSCo) says that while it supports moves to combat tax avoidance, it is concerned that the burden on recruitment firms will be 'unreasonable'. Not only does APSCo believe it will be very difficult for recruiters to verify an offshore employer if they do not wish to cooperate, but it is concerned that smaller agencies will be disproportionately hit.
The Institute of Chartered Accountants in England and Wales agrees, adding that the costs and compliance burden for recruiters would be 'enormous'. But the organisation also added that both compliance and enforcement would be extremely difficult in a large number of instances.
"It is common knowledge that IR35 is unenforceable, let alone obligations on entities outside the UK jurisdiction" ICAEW said in a statement.
More significantly, the institute claims that the proposals merely 'tinker round the edges' of a fundamentally flawed system and need to go much further.
"If the existing National Insurance legislation covered all supplies of labour rather than personal services only, and was enforced, then this could meet the National Insurance concerns which the consultation document is addressing" ICAEW adds. But as it stands, the organisation says that the government needs a rethink its whole tax policy.
Obviously the proposed legislation will not affect any workers employed by PayStream but end clients might ask for reassurance that no offshore scheme is being used. A copy of a payslip should do the trick but if further reassurance is required the customer care team can help with a response, simply send an email to firstname.lastname@example.org with your request and the reason for the request.