Offshore payroll loophole to be closed, says Alexander

A £100m National Insurance tax loophole that is depriving the Treasury of tax revenue is to be shut down.

Treasury chief secretary Danny Alexander said that the offshore payroll services loophole, which enabled British companies to avoid paying tax for thousands of workers, would be closed.

Speaking at the Scottish Lib Dem conference on 16 March, he said some 100,000 employees - primarily nurses, teachers, and oil and gas workers - were believed to have their salaries paid via offshore payroll services operating out of Jersey and Guernsey.

He said it was 'completely counter to the spirit of the law' and 'neither right nor fair'.Alexander warned that many staff who were paid in this way would be unaware that they may be ineligible for statutory sick pay.

Alexander said: 'A few months ago, at Inverness airport, a man told me that he was now being paid through an intermediary rather than direct by his British employer so that it could avoid paying its fair share of employers national insurance. I went back to the treasury to investigate. And it turns out that he's not alone.

'By running their payroll through an offshore location like Jersey, these intermediaries can avoid paying employment tax at a cost to the Exchequer of around £100m a year - and rising. Completely counter to the spirit of the law. Neither right nor fair.

'In the Budget we will introduce new powers to clamp down on companies who avoid tax by putting their payrolls in tax havens. Our message is clear. British firms employing workers in Britain must pay British taxes. This is just one part of a much bigger package that we will announce at the Budget. There is no hiding place. Everyone must pay their fair share.'

Patrick Stevens, tax partner at Ernst & Young, was quick to condemn the loophole.

He told the BBC: 'This originates from the situation where British companies are sending their employees overseas, so if they're working full-time overseas, it's probably perfectly fair that they are not subjected to UK tax.

'But in some cases people are taking advantage of a bit of a loophole where British workers are being got into the same situation but this needs to be closed down.

'It's the special rule around agency workers that I understand is allowing people to get into this loophole and take advantage of something that was really only meant for people working overseas.'

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