Supply Teacher

Government commits to tackling offshore umbrella companies

In the 2013 Budget, the Chancellor of the Exchequer set out a commitment to clampdown on the activities of offshore ‘umbrella’ companies identified by supply teachers as responsible for significant levels of tax avoidance and evasion.

The commitment follows an investigation undertaken by Her Majesty’s Revenue and Customs (HRMC) into the actions of umbrella companies, also referred to as ‘employment intermediaries’. This investigation confirmed that over 100,000 UK-based workers are employed by such intermediaries and that growth of the practice was driven to a significant extent by some employment agencies seeking to avoid their tax and National Insurance obligations. The HMRC also found that many workers, including supply teachers, employed in such circumstances remain unaware that employment taxes are not being paid on their behalf.

Offshore umbrella companies and supply teachers

The findings of the HRMC investigation reflect concerns expressed previously by NASUWT supply teacher members. Feedback from teachers seeking work through employment agencies has confirmed an increasing insistence on the part of some agencies that prospective supply teachers agree to be employed by umbrella companies, either located onshore or offshore, as a condition of being offered work. In some cases, the employment agencies and umbrella companies are part of the same organisation.

However, as some umbrella companies used by some agencies are based outside the UK, often in tax havens, they cannot be required by the HRMC to pay the employment taxes, particularly National Insurance contributions, that would be due were they to be based in the UK.

Some umbrella companies have also sought to exploit tax loopholes that allow them to claim tax relief on expenses incurred by their employees.

Supply teacher members report that they are often placed under pressure to submit expenses related to costs incurred in getting to their place of work that they would not otherwise claim. These expenses are then used by agencies and umbrella companies to offset salary costs and to generate additional revenue through tax reliefs. While this procedure for claiming work related expenses is permissible by law, it applies only to temporary workers carrying out work of a limited duration.

Unfortunately, some umbrella companies claim, wholly incorrectly, that because the supply teachers are their employees but work elsewhere, they can receive part of their income equal to their travelling expenses free of tax. It is critically important to note that any liability of making a false claim on expenses remains the sole responsibility of the worker concerned, regardless of the information they have been given by an umbrella company or by an employment agency.

It has become clear that not only does the use of employment intermediaries in this way represent a profound abuse of the tax system, given that it deprives the Government of legitimate tax revenue, it may also place supply teachers employed through these entities in a highly vulnerable position.

HRMC has made clear that that a liability continues to exist in respect of the employment taxes that employment intermediaries have been able to avoid through their offshore status. However, it has not yet confirmed whether this liability rests with the supply agency that has engaged the services of the offshore umbrella company or with the individual supply teachers who have been employed through employment intermediary arrangements. The Union’s investigations to date have indicated that such liability for the unpaid taxes and national insurance contributions, which in certain circumstances may have been deducted at source by the umbrella companies but not paid to the HMRC, would be likely to depend on whether supply teachers are have employed or self-employed status.

The non-payment of employment taxes could impact detrimentally in future on the eligibility of supply teachers to welfare benefits, such as statutory maternity/paternity pay or sick pay.

Tax avoidance

The Government has confirmed that it intends to give HMRC necessary powers so that employment taxes will be payable for all employees in the UK, irrespective of where their payroll is located. HRMC estimates that tackling tax avoidance would benefit the Exchequer by almost £100 million a year.

The Union will be pressing the HMRC for clarity over the tax liabilities of supply teachers who have been employed by offshore umbrella companies and for provision to be made to ensure that these teachers are not held liable for the payments that should have been made by their employer. The NASUWT will also be seeking confirmation that supply teachers will be subject to no detriment in respect of their eligibility for benefits as a result of their prior employment by umbrella companies.

Action to tackle the tax-dodging practices of umbrella companies relies on further evidence from teachers about the practices of these companies. The NASUWT welcomes the receipt of any advice and information, all of which will be dealt with in confidence.

Advice and support

The NASUWT provides expert advice on key issues regarding the use of offshore intermediaries in relation to the employment of supply teachers, including:
• the legality of the contracts issued to  supply teachers members by employment agencies and umbrella companies, whether onshore or offshore;

• implications of employment and self-employment status;

• potential liability for the employment taxes and National Insurance contributions that these agencies and companies have sought to avoid; and

• rules governing tax exemptions.

It is essential that supply teacher members concerned that they may have been engaged by supply agencies that have not managed their tax and National Insurance arrangements appropriately ensure that they keep accurate and up to date records of their employment history. This includes all pay slips, tax documentation, including P60 and P45 records, and written details of contracts of employment or service.

Experience gained by the NASUWT through its representation of supply teachers has highlighted the serious problems that can arise when important documentation is missing. Members with incomplete records of their employment history should contact the supply agencies with which they have worked seeking copies of their information. Help should be sought from the NASUWT if members face difficulties in obtaining this information from supply agencies.

Feedback from NASUWT supply teacher members has made clear that employment agencies often make accepting employment by an offshore umbrella company a condition of registration. Clearly, members should, wherever possible, only register with agencies that are able to confirm that they will pay relevant employer tax and National Insurance Contributions.

The commitment by the HRMC to clamp down on the use of offshore umbrella companies provides a genuine opportunity to expose supply agencies that make use of the services of these companies to avoid their tax and National Insurance obligations and to ensure that agencies will only be allowed to continue to operate if they regularise their tax arrangements. In light of this further potential change in approach from the Government and the HMRC, members should check this section of the NASUWT website for regular updates, FAQs, advice and guidance on this critical issue.

Contact details for your NASUWT Regional/National centre can be found here.