The government confirmed it will be taking forward the proposed rules on offshore and onshore intermediaries. The plans to review the use of offshore employment intermediaries were announced in the last budget, while an announcement on onshore employment intermediaries was made more recently at the Autumn Statement.

The new legislation for both initiatives will take effect from 6 April 2014, so there is now very little time for employers, intermediaries and end-users to understand their withholding and reporting obligations. There has been reprieve on just the reporting requirements under both proposals until 2015/16. Many businesses have held off taking action pending the sight of the final regulations. Commercial issues such as renegotiating contracts to take account of increased costs have not been possible to conclude as suppliers have not been willing to negotiate based on only draft proposals.

The new offshore proposals will put an end to arrangements by which an offshore employer is used to avoid UK employer's National Insurance. However, the current proposals could also affect genuine commercial arrangements which have no tax avoidance motive. Any business providing services could find themselves liable for National Insurance if individuals involved in delivering the service have an offshore employer. Similarly, any business buying a service from an overseas supplier could be liable for UK NIC in respect of people who come to the UK to provide the service. We have urged HMRC to clarify how the new rules should apply in such situations, pointing out that the legislation does not appear to work as intended or may lead to uncertainty as to which entity in a contractual chain should operate PAYE/NIC.

The oil and gas sector will have its own rules because the government accepts that many workers in this sector have offshore employers for genuine reasons. The industry has not unreasonably asked to be given more time to adjust to the new rules. Individuals working for a typical oil and gas contractor will be of varied nationalities, work in numerous jurisdictions and do a variety of different jobs. All these factors, along with international agreements need to be considered in determining whether the new rules apply to an individual and whether UK National Insurance should be paid.

Concerns about the breadth of application of the rules also exist for the onshore employment intermediaries proposal. Under the current draft legislation, many genuinely self-employed people could become subject to employer's NIC. This does not seem the right result. We look forward to seeing the revised draft legislation that is due out next week to see if the government has responded to this wide concern.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.