HMRC Challenge Offshore Employment Arrangements

A recent First Tier Tribunal decision has opened up the way for HMRC to challenge offshore employment arrangements where a UK based company has the benefit of the employee’s services and has borne the costs of remuneration even though the employee is employed by a non UK company. The decision was that the UK entity was the economic employer.

HMRC are already beginning to pursue this line of investigation against two shipping companies that we are aware of and we understand that this will expand to other organisations that utilise these arrangements within both the marine and energy industries. In one sense there is nothing new in that decision, and no new principle of law is created, but it does highlight that precisely how arrangements work in practice can be pivotal in determining the tax and perhaps NIC treatment of individuals, and therefore the risk profile for companies. 
It is imperative that organisations who operate such offshore arrangements review those arrangements as a matter of urgency in order to ensure that they are sufficiently robust in their compliance with HMRC guidelines.
Some of the factors that appear to have shaped the Tribunal decision include
• The employment contract is governed by UK law
• The pension provision is with a UK provider
• Interviews for jobs performed by the “end user” in their offices.
• Work schedule organised by the “end user”
• Disciplinary and grievances dealt with in the first instance by “end user”
• Day to day control and management of the employee
• Redundancy payments calculated by service on “end users” vessels
• Terms & conditions of employment not clear whether Employer or “end user” making decisions, providing safety equipment etc.
• “end user” exercising explicit detailed control over whom was employed.
This decision will probably be used by HMRC in future, unless there is an appeal, and exisiting arrangements may need to be changed as a result by introducing genuine third parties into the structures where appropriate.
Should you require any further information or assistance please do not hesitate to contact us.