The UK North Sea oil and gas industry may suffer further skills shortages after a widely expected tax grab on working practices, an expert has warned.
Documents published by the Treasury on Budget day highlighted the likely prospect of rule changes already affecting “off-payroll” (self-employed) workers in the public sector being rolled out to the private sector.
The move would put workers doing similar jobs under the same taxation regime, while at the same time raising extra revenue – reportedly up to £1billion a year – for the Treasury.
It would affect the way tens of thousands of people are “employed” across the offshore oil and gas industry.
But it would also have huge implications for many other sectors, construction firms, for example, often hire self-employed contractors to carry out work.
The Scottish Building Federation has welcomed the prospect of an end to existing employment “loopholes”, although it will “reserve judgement” until the UK Government publishes research findings in advance of a consultation next year.
But fears are growing about the potential ramifications for the oil and gas industry, with Katie Williams, employment law specialist and head of Aberdeen office at law firm Pinsent Masons, today warning the move could lead to lower day rates for contractors and “further skills gap issues”.
A worker is off-payroll when they work for a company through their own business, rather than directly.
According to the Treasury, HM Revenue and Customs IR35 off-payroll rule changes introduced in the public sector have been a success.
Blick Rothenberg, a London-based accounting, tax and advisory practice, urged employers to start preparing for change.
Lee Hamilton, a partner at the firm, added: “It is highly likely there will be significant changes to the rules in the private sector in the pipeline. Any such changes will have a more significant impact on certain sectors such as entertainment and construction, where the use of off-payroll workers is prevalent.”
“We would encourage employers to follow any consultations closely to allow time to prepare for future legislation which is likely in this area.”
RMT union regional organiser Jake Molloy welcomed the focus on self employment arrangements for health and safety reasons.
Mr Molloy added: “Self employment is not conducive to improving health and safety culture, workforce engagement or team working. It should be outlawed for these reasons alone and not simply the collection of taxes.”
Employment law expert Katie Williams, head of office at Pinsent Masons in Aberdeen, said she was not surprised the UK Government was looking to extend off-payroll rule changes (IR35) to industry.
She added: “It should be relatively easy to extend to private sector contractors and, perhaps because of sensitivities and an expected uproar, the chancellor has opted first to enter into a consultation process.
“At the moment, contractors are likely to be operating as private limited companies which are paid a fee. The onus is on the contractor to pay appropriate income tax and National Insurance contributions (NICs). If it is deemed that
IR35 applies, the end-user will make deductions at source and pay income tax and NICs direct to the Inland Revenue.
“I can’t imagine any end-user would be happy to absorb greater NICs, not to mention administration costs, which means the contractor is likely to receive less income.
“If the contractor is unwilling to accept this and takes their skills and experience elsewhere, the North Sea oil and gas sector may suffer further skills gaps issues.”
Industry body Oil and Gas UK said any loss of workforce flexibility “would be of concern”.
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