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Following clause 20 and PAYE obligations for UK intermediaries, clause 21 applies similar obligations with specific provisions for oil and gas workers on the continental shelf. With specific reference to workers supplied by a non-UK based employer, clause 21 will add a new section 689A to the Income Tax (Earnings and Pensions) Act 2003 to make key provisions. When the offshore employer has an associated company, body or agency based in the UK, the associated company, body or agency will be responsible for accounting for the NICs and tax of its offshore associate. When the offshore employer has no associated company in the UK, the oilfield licensees will be responsible for accounting for the tax and NICs.
In recognition of the fact that oilfield licensees are generally removed from the operation of the oilfield—joint operating agreements on oilfields are but one example of that—and given the complex chains of employment in the sector, the Government propose to institute a certification scheme similar to the one operated for corporation tax, whereby a compliant offshore employer can apply to HMRC for a certificate. While the certificate is in place, it will remove HMRC’s ability to enforce any unpaid employment tax and NICs against the licensees.
The Government announced at Budget 2013 that they intended to strengthen legislation to prevent offshore intermediaries being used to avoid employment taxes, as we have already heard in our consideration of previous clauses. We find nothing wrong with that in principle. A number of technical points in the clause specifically relate to the offshore sector, and I do not wish to repeat the principles that have already been discussed, but I wonder whether the Minister might answer a couple of questions.
As I understand it, there was some consultation on the initial proposals and the Government revised them based on concerns that some of the measures would be hugely complex and would not easily fit the complex supply chains in the oil and gas sector. Will the Minister clarify whether the significant complexities that were identified during that consultation process have been resolved? Is he confident that the oil and gas industry is sufficiently satisfied that the revised proposals now fit that bill? It is important to understand that because the information impact note outlines expected total costs of some £800,000 across approximately 10,000 businesses in the UK oil and gas sector. There is some concern about that. Is the Minister able give us any further information today? If he is not able to, perhaps he could let the Committee know in due course about the tax information impact note and the net benefit to the Exchequer as a result of the provisions in clauses 20 and 21. Those were set out in table 2.1 of Budget 2013: £80 million in 2014-15; £85 million in 2015-16 and 2016-17; and £90 million in 2017-18.
Is the Minister able to break down those figures further and outline how much of that revenue is expected to come from provisions contained in the clause, which is aimed at the oil and gas sector? How confident is he in those figures, considering previous estimates of revenue yields as a result of other offshore tax avoidance and evasion measures did not perhaps give us as accurate a picture as people may have liked? For example, in the autumn statement of 2012, it was suggested that the UK-Swiss confederation taxation co-operation agreement would raise £3.2 billion in 2013-14, rising to £3.45 billion in total at the beginning of 2013. The point was raised in last year’s Finance Bill Committee. At that stage, the Exchequer Secretary told my colleague that the estimates remained the same, yet a few months later we were told that the Exchequer had received only a fraction of that amount. My question is about the robustness of the figures and how they were calculated.
The tax information and impact note predicts expected implementation costs to HMRC of around £1 million, as well as what it describes as a “small increase” in costs of administering the new certification scheme for compliant offshore employers. Given that it is estimated that HMRC will have lost a total of more than 18,000 full-time equivalent posts by March 2016—assessed as 26% of its work force—and following on from what my hon. Friends have said, what additional burden are the measures likely to place on HMRC and its staff, which are in addition to the problems that will be placed on the oil and gas sector?
Perhaps the Minister could reassure me on those points. We do not intend to vote against the clause but it would helpful to have that information.
I thank the hon. Lady for her support for the clause and for her questions, which I will attempt to address. As we have heard, clause 21 supplements the changes introduced by the clauses that we have just debated in order to tackle tax avoidance by employment intermediaries. The clause makes changes to clarify who is responsible for operating PAYE in respect of workers on the UK continental shelf. It also allows the Treasury to make regulations for a certification scheme when someone other than the deemed employer for tax fulfils those obligations.
The clause provides a tailored legislative approach for the oil and gas industry. It is consistent with other legislation relating to the oil and gas industry, and is required because of its complex structures, which are absent in other sectors. Additionally, there are many legitimate reasons why employers of oil and gas workers are based outside the UK. However, for several years employers of workers engaged on the UK continental shelf have been relocating outside the UK in an attempt to avoid UK employment tax obligations. The clause will end those practices by clarifying when and where UK employment tax obligations arise. It will ensure that there is no longer a situation in which those who are doing the right thing and paying their taxes are at a competitive disadvantage.
Changes being made by the clause include creating a new section 689A, clarifying who is responsible for operating PAYE in respect of workers on the UK continental shelf. In practice, that means that when the employer of the worker is based outside the UK and has a UK-associated company, that associated company is responsible for operating PAYE. When there is no UK-associated company, the oil field licensee is responsible for operating PAYE.
The clause also provides the Treasury with the power to make regulations about a certification scheme. The regulations were laid under a Provisional Collection of Taxes Act 1968 resolution on 2 April 2014, and came into force on 6 April 2014, allowing HMRC to issue certificates from then. The regulations allow for the offshore employer to apply for a certificate where the oilfield licensee is responsible for fulfilling PAYE obligations. The certificate confirms that those obligations have been fulfilled by another party.
For the certificate to remain valid, the non-UK employer will have to comply with all UK PAYE obligations, including those associated with real-time information reporting and employers’ national insurance obligations. While the certificate is in place, the oilfield licensees will not be liable for any underpayments of income tax. If the non-UK employer fails to comply with its obligations, HMRC will withdraw the certificate and the oilfield licensee will become responsible for all future PAYE obligations.
HMRC has consulted extensively with the oil and gas industry about the design of the measure. The proposals have changed significantly as a result of that consultation in order to take into account concerns raised by the industry. We were clear about what those changes were and how the legislation would operate in the response document that we published in October 2013. The oil and gas industry requested the certification scheme that I have just described and that we are now implementing. We believe that the changes will ensure that the administrative burden is significantly reduced from the original proposals, but we will still ensure that the employer of workers on the UK continental shelf will comply with its obligations in the same way as all UK employers.
I was asked about the burden on HMRC and the yield. The offshore measure is scored at around £80 million per annum, including both oil and gas and the use of offshore employees in the temporary labour market. We have already seen many companies moving onshore. As for the burdens, HMRC is introducing computer systems for the return requirements, which will assist with what HMRC is able to do and ensure that it can deal with the burden.
There is a large number of oil and gas workers in my constituency, and local agencies report that HMRC is not very good at relating to them regarding training and assistance for the arrangements that it puts in place. The issue is not just computer systems, but ensuring that HMRC staff are able to advise agencies on what needs to be done.
I am grateful to my hon. Friend for his intervention and will make sure that his concerns are expressed to HMRC in order to ensure that the necessary skills and expertise are there to deal with such issues. HMRC’s role is to ensure that the law is properly enforced and taxes are paid, but it is important that effective and constructive relationships exist.
The clause ensures that there is a level playing field for those engaging workers on the UK continental shelf. It recognises the unique nature of the oil and gas industry and puts in place a system that works for the industry and is not unnecessarily burdensome. In fact, we have recently had some good news. As a direct result of the clause, some of the largest contractor companies providing workers on the UK continental shelf have already unwound their offshore arrangements. They are now employing their workers out of the UK. Given the remarks I have made and my attempts to answer the questions, I hope the clause can stand part of the Bill.