New measures to plug a tax loophole widely exploited in the public sector to disguise employees as freelancers could be used to tackle similar practice in the oil and gas industry.
Chris Sanger, head of tax and policy at global accountancy giant EY, said the changes anticipated in Wednesday’s Budget could have a major impact on how the public sector hires contractors and pave the way for moves to extend them to the offshore industry.
Civil servants, along with institutions such as the BBC and the Bank of England, will be affected by rule changes to stop earners gaining tax advantages by being “off the books”.
About 20,000 public sector workers are avoiding an average of more than £3,500 a year in income tax and national insurance contributions under the current system, according to the UK Government.
Under the chancellor’s clampdown, state-backed organisations, instead of individuals, will become responsible for deciding if income should be taxed at source.
New guidelines will also be introduced to make it clearer when employment taxes should be paid.
Mr Sanger said: “The government believes there’s a lot of companies who should be paying this tax, but aren’t.
“The changes are its way of making sure companies it has a stake in don’t employ people on this basis.
“It’s quite odd because it doesn’t seem to be a change in the tax law. If you have contractors in the North Sea, for example, it doesn’t seem to affect them – so it may be that the government may follow this up with new rules.
“It may be that these changes are the first step and will herald an even greater change, maybe not in this Budget but the next.”
Mr Sanger said any moves to extend them could lead to oil and gas companies withholding income tax and national insurance payments when settling up with contract workers in the offshore industry.
He added: “If you are genuinely self-employed, all that would mean is there would be a pre-payment of your tax. If it’s overpaid, you could get a tax rebate by filing a return.
“It would move the onus away from the HMRC (HM Revenue and Customs) having to track people down to the contractor, who would have to effectively prove they are not a disguised employee.
“If this were to happen, it would be a big shake-up in terms of how it would change the contracting relationship between the end user – like big oil – and the personal service company.”
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