The government should be clear on offshore tax loopholes, says the ARC

A recent Radio 5 Live expose revealed that no employer national insurance contributions (NIC’s) are being paid for the supply teachers operating via an offshore arrangement, based in Sark.It also suggests that the teachers or educational establishments concerned could be liable for the unpaid NIC’s. This brings a difficult issue sharply into focus, says Adrian Marlowe; Chairman of the Association of Recruitment Consultancies (ARC). “The hard facts of the teacher supply marketplace are that educational hirers want to pay best economic rates and teachers want to receive best net pay. There are legal ‘loopholes’ that enable this operational compromise and so there will always be organisations that take advantage of them to facilitate the demand (so long as the arrangements are legal). Should they be criticised for doing so?”

The ARC’s own investigations indicate that all EU member states are signed up to a reciprocal agreement with the UK for national insurance contributions since 2006 (as are some offshore states, for example Jersey and Guernsey), Sark however is not – and HMRC must be fully aware of this. The programme went on to acknowledge that non-payment of Employers Liability is a grey area. HMRC suggest that someone should cover it – which has resonated with educational establishments, who are quickly re-checking their relationships with supply agencies. Some are announcing a strong moral position against the arrangements, in addition to expressing concerns about potential liability for unpaid NIC charges.

Tim Mirsadeghi, Managing Director of  Itper (an education recruitment agency based in London and ARC member) comments; “Our client schools and teachers are telling us that they’re really worried about this. We’ve always refused to work with offshore umbrella companies as we don’t think it’s appropriate for agencies to involve schools and teachers in offshore tax avoidance schemes that attract criticism from HMRC, regardless of whether these schemes are technically legal or not.” 

The result of the seemingly obvious loophole is that those supply organisations that take the moral stance that proper levels of tax should be collected and paid are at a trading disadvantage in terms of chargeable rates compared with others willing to stick to the letter of the law. In the absence of HMRC taking a strong and clear line on the legality of these arrangements this disadvantage is set to continue, some would say quite unfairly.

Adrian Marlowe continues; “HMRC is responsible for publicly and overtly closing the loophole, if it meets with government policy. On the other hand if government policy is to continue to permit it, those currently disadvantaged may be relieved that they can trade with Sark businesses without moral compunction, or potential criticism. One way or another it is time for HMRC to clear up the legal position, rather than allow the continuous drip of moral indignation versus legality to carry on.” (A version of this article also appeared in ARC news on 9th November 2012).