A NICs 'loophole' closes
The Treasury is clamping down on what it perceived was an avoidance of National Insurance Contributions by the shipping industry who transferred employees' contracts to companies outside the UK in order to take advantage of a loophole in NICs legislation.
The Paymaster General, Dawn Primarolo, has announced that the Government intends to prevent avoidance of employer's NICs by shipping companies operating within UK territorial waters. It has been claimed that some operators transferred their employees' contracts of employment to companies outside the UK for NIC avoidance purposes. The change will not affect mariners employed wholly or mainly outside UK territorial waters.
The Paymaster General said: "I want to ensure that workers on ships in the UK have the same rights and entitlement to benefits as other UK workers, and that the operators of those ships pay the same contributions as other employers. The changes I am announcing today will ensure that the rules apply to them in the same way as to other UK employers."
Since 6 April 1994, UK companies who use the personal services of employees of non-resident UK companies have been liable for employer's NICs, even though they did not employ the workers. However, these rules have not been applied in the case of mariners, for whom there are special NICs rules. This has led to a practice in some parts of the UK shipping industry of using offshore manning companies. The offshore manning companies supply the UK resident shipping company with UK resident mariners to operate the ships. Neither the UK shipping company nor the offshore manning company has paid employer's NICs.
In order to ensure that all the operators of ships within UK territorial waters pay employer's NICs on the same basis as other UK employers, the Inland Revenue has reviewed the relevant legislation introduced from 6 April 1994. That review now confirms that a liability for employers' NICs does exist for UK shipping companies that man their ships using employees of offshore manning companies. The Revenue claims this is the same as for other employers in the UK who use the personal services of employees provided by overseas companies without a place of business in the UK. As a result of this review changes will be made to clarify the legislation.