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Offshore employer arrangements have been growing. Around 100,000 UK-based workers are employed by offshore entities – mainly in positions such as supply teacher or locum nurse – but LITRG is aware of many low-paid, unskilled, often migrant workers caught up as well, for example in catering and construction.

 

The advantage of these types of arrangements for the employers is that they have no ‘place of business in the UK’ and therefore don’t fulfil the National Insurance residency or presence conditions of a UK employer. Under the social security regulations¹, this means they do not have to act as the secondary NIC contributor on any payment of the individual’s earnings – and therefore do not do so.

 

LITRG understands that the ‘savings’ from these planning arrangements do not necessarily end up in the employees’ pay packets. In fact, they leave their workers in a very precarious position with regard to access to certain benefits that rely on there being a secondary NIC contributor, such as Statutory Sick Pay (SSP) or Statutory Maternity Pay (SMP), accessibility to which could be of the utmost importance to a taxpayer during what could be a very vulnerable time in their life.

 

At Budget 2013 the Chancellor announced a headline-winning clampdown on these offshore employers. The Government went on to consult on proposals to create a specific NIC charge on offshore intermediaries employing workers in the UK – which, if the employer failed to pay, would move down the chain of entities, potentially ending up with the onshore engager of the labour.

 

The foreword to the consultation document emphasised that one of the aims here was to protect the worker from loss of benefits – an aim that LITRG applauded. However, the element of worker protection in reality did not go far enough, in that while any future obligation for SSP/SMP payments would move down the chain in the event of a ‘default’ by the offshore employer, any historic underpaid SSP/SMP would stay with the offshore employer. The consultation document went on to suggest that ‘the employee will still be able to pursue the employer for statutory payments in the usual way’.

 

LITRG pointed out, in its response to the consultation document, that this seemed at odds with the spirit of the proposals and that the suggestion made it sound as though it would be a simple case of the employee retrieving their unpaid funds via a quick phone call or letter. Yet, as many of these types of employers are based in the Channel Islands or Isle of Man (i.e. outside both UK and EU territory) LITRG suspected the reality for the employees, in calling on their rights, would be much more complex and costly – if not impossible.

 

The group was therefore heartened to see a specific acknowledgement of this inconsistency in the Government Response, along with amendments to the proposals which helped remedy the problem. Broadly, the revised proposals will see an onshore entity made wholly and immediately responsible for accounting for the NIC obligations from the outset, thus providing clarity and certainty for the employee as to whom the SSP/SMP should be drawn from for the duration of their employment.

 

While this ‘fix’ is clearly to be welcomed, there are wider issues in the temporary or agency worker industry that still need to be addressed, bred mainly from the UK’s overly complex tax laws. LITRG’s ongoing representations about the need for simplification also received a small nod in the Government response document; however, it seems another opportunity to stamp out unfairness in general in this area has passed by and a really comprehensive review of the law will continue to be elusive.

 

 ¹ Section 145 (1) (b) Social Security 2001 regulation