Offshore Employment Intermediaries: HMRC consultation on measures designed to tackle tax avoidance when UK companies engage UK workers via offshore arrangements that are designed to avoid PAYE and NICs ended in October 2013. It has been decided to introduce simplified proposals.

Key features of the new measures include:

UK Continental Shelf: the measure includes special rules for where a person is employed on the UK Continental Shelf in the oil and gas industry by or through an offshore intermediary.

  • An associate company of the offshore employer is first made responsible for operating PAYE and NICs. 
  • If there is no onshore associate company then the licensee is made responsible for operating PAYE and NICs.
  • If the offshore employer is correctly meeting all PAYE and NICs obligations on behalf of the licensee, then HMRC will issue a certificate exempting the licensee from their PAYE and NICs obligations. As long as this certificate is in force, the licensee cannot be pursued for any PAYE or NICs obligations.

The measure implements new rules where a worker is employed by or through an offshore intermediary:

  • Where there is a UK agency in the contractual chain, the UK agency is responsible for operating PAYE and NICs.
  • Where there is no UK agency in the contractual chain, the client the employed person works for is responsible for operating PAYE and NICs.
  • There will be a simplification of the agency worker tests for those supplied by or through UK or offshore agencies in order to make the tests quicker and easier to establish.

Foreign employers

The National Insurance 'host employer' rule that applies where a person employed by a foreign employer works in the UK for a UK host business is being retained. However, it will be more simply worded and the hierarchy between this rule and the agency rule will be made clearer.

Background and current rules

  • Offshore employers may be subject to NICs even when the employer has no presence in the UK under the host regulations.
  • Workers operating via UK service companies are expected by HMRC to apply IR35, the intermediaries legislation, when appropriate. Due to the complexity of the labour supply chain many UK service companies may claim that IR35 does not apply to them.
  • It is difficult for HMRC to enforce existing rules because of the complexity of the supply chain and the numbers of workers involved.


  • Section 689 ITEPA 2003 requires a UK business which is using the services of workers in the UK, which are employed by an offshore company to deduct PAYE and NICs.
  • If the business is not based in the UK then section 7 TMA 1970 requires the worker to declare their income under Self Assessment.


  • Paragraph 9 of Schedule 3 to the Social Security(Categorisation of Earners) Regulations 1978 (SI 1978/1689) 'the host regulations" may apply where there is an offshore employer but the worker is making their personal services available working in the UK for a UK company.
  • The UK has agreements with other territories: if the employer is located on the Isle of Man it must operate NICs, and under EU law social security rules may be modified where a person works cross border, but NICs must be operated where an employer has a place of business in the UK.

The next steps

The legislation to implement the certification scheme will form part of the NICs Bill. The NICs Bill was introduced into Parliament on 14 October 2013.

The draft taxation, record keeping, return requirements and penalties legislation will be introduced in Finance Bill 2014. Draft legislation, explanatory notes and guidance will be published in autumn 2013.


Responses to the consultation on Offshore Employment Intermediaries