What new tax rules will mean for offshore workers

Alex Arthur, Director of Tax at Johnston Carmichael

After a recent consultation, HMRC has issued further guidance on the steps being taken to reduce the loss of tax and National Insurance Contributions (NIC) due by offshore employees and employers.

Special arrangements are needed for oil and gas workers due to the hundreds of contracts and subcontracts involved in running offshore oil installations, which can make it difficult to know who is required to pay what.

Under the new regime, UK based associates or branches of offshore employers will become liable to make good any unpaid tax and NICs.

Offshore employers who do not have a UK associate or branch will be able to apply for a compliance certificate however if they do not have a certificate, the liability will pass to the oil company who has the license.

As HMRC points out, the oil company which holds the license could ‘ask’ the offshore employer to fulfil their tax obligations. However the licensee will still be liable for any failure incurred by the offshore employer.

At present, many offshore employers that deploy workers to the UK Continental Shelf (UKCS) operate UK PAYE, however are not liable to pay employers’ NIC for workers classed as ‘mariners’.

HMRC has drafted the new rules carefully so that NIC relief remains in place for recognised ‘mariners’, but will be denied to some of those who have staff working aboard floating installations as opposed to supply or safety vessels.

Following the consultation process and meetings with HMRC, we expected a definition of mariners to be announced, however further queries and concerns were raised, which has meant that this is still under consultation.

A draft of the proposed changes to the NI regulations show that if you are a UKCS worker, as well as a mariner (still undefined) then being a UKCS worker will trump the mariner rules.

This means that many more mariners will be caught, so the effect will be more widespread than first envisaged, following discussion with HMRC.

However there are still unresolved questions.

For instance, what happens when a vessel switches from an oil and gas contract to do offshore renewables work? As the new information is still under the consultation process, we have spoken to HMRC and are in dialogue with them to clarify their understanding.

I hope that by the time the amendments are finalised, genuine mariners will remain within the current status and that no NIC is due, allowing UK businesses to remain competitive in the UK market.

Discussions with HMRC have been generally open and constructive and they suggest that they will not normally pursue UK associate companies where the offshore employer already operates PAYE and complies with the Real Time Information rules.

Alex Arthur is director of tax with Johnston Carmichael

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