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View the related Tax Guidance about UK continental shelf

Employment on UK continental shelf

Employment on UK continental shelfPosition from 6 April 2014Significant changes were made to the provisions from 6 April 2014 and from that date the amended SI 2001/1004, reg 114 means that all employees on the UK continental shelf (UKCS), including mariners who are engaged in oil and gas-related activities on an installation, are deemed to be resident in the UK and liable to pay primary NIC. There will also be a secondary liability and the legislation determines the secondary contributor as:•the employer, if that employer has a place of business or other presence in the UK•any entity with an associated presence, if the employer has no presence (an associated company is defined in CTA 2010, s 449)•the oil field licensee, if there is no associated presenceThe key to the matter is the definition of installation. This is so widely drawn that it includes all structures including vessels on the UKCS. There are some exceptions to this general rule and they are as follows:•mariners who are engaged wholly or mainly on safety or supply vessels or a combination of both •engaged in cable-laying•individuals who are employed in one of the positions outlined in Column A and holds the relevant certificate as listed in Column B of Table 1 in SI 2001/1004, reg 114(5) (table reproduced below for ease of reference), and whose presence on board is in order to comply with the safe manning

Offshore oil and gas workers

Offshore oil and gas workersSTOP PRESS: The remittance basis is abolished from 6 April 2025, although this only applies to foreign income and gains arising on or after that date. The remittance basis rules still apply to unremitted income and gains arising before that date but remitted later. The legislation is included in FA 2025. For more details, see the Abolition of the remittance basis from 2025/26 guidance note.Income tax on earningsAn employee’s tax position can sometimes depend on whether he carries out his duties in the UK or elsewhere. This is the case if the employee is non-resident in the UK, not domiciled in the UK with the remittance basis applying (to 2024/25), or entitled to relief from 2025/26 on the basis that they are a ‘qualifying new resident’ (see the Tax on cash earnings ― overview guidance note for more details).Note also that the non-UK domicile basis of taxation was abolished from 6 April 2025. For further details of the impact of the post-April 2025 rules , see the Abolition of the remittance basis from 2025/26 guidance note.As offshore oil and gas installations in waters around the UK are outside the UK’s territorial waters, duties carried out on board those installations are, as a matter of fact, carried out outside the UK. However, for income tax purposes the worker is treated as carrying out his duties in the UK if:•the worker’s duties are carried out on connection with the exploration or exploitation of natural resources on

Offshore employment companies

Offshore employment companiesIn the past, HMRC has investigated a number of attempted avoidance schemes involving offshore employment intermediaries. Those schemes were mainly aimed at avoiding secondary (employer) Class 1 NIC. HMRC considered most, if not all, of the schemes to be flawed, and it continues to challenge them, although enquiries can be complex. See ‘Workers employed on the UKCS’ below for details of the 2024 First-tier tribunal (FTT) case of Bilfinger Salamis, which illustrates the type of arrangement HMRC may have encountered and challenged, under the pre-April 2014 ‘host employer’ NIC rules.Against this backdrop, HMRC had conducted a review during 2013 as to how best to change the rules relating to offshore employment intermediaries being used to avoid tax and NIC to make enforcement easier. This focused in particular on the deliberate hiring via an offshore entity (agency) to take advantage of the rule that payment of contributions cannot be enforced where the employer has no place of business in the UK.As a result of the review and subsequent consultation process, the government introduced legislation effective from 6 April 2014 to prevent avoidance in the payment of secondary NIC by offshore umbrella and agency companies, and where workers are employed on the UK Continental Shelf (UKCS) (in particular, those in the oil and gas industries).However, those UK ‘host’ businesses already compliant and deducting PAYE including Class 1 NIC should not be materially affected by the revised legislation. The thought process behind the legislation is that where PAYE has not

Foreign income and gains regime ― relief for foreign employment income

Foreign income and gains regime ― relief for foreign employment incomePrior to 6 April 2025, UK resident individuals who were not domiciled or deemed domiciled in the UK had the choice to pay tax on:•the remittance basis ― broadly meaning that UK tax was only paid on foreign income and gains to the extent that these were brought to the UK in the tax year, or•the arising basis ― meaning UK tax was payable on worldwide income and gains arising in the tax yearFrom 6 April 2025, the remittance basis of taxation is repealed as a consequence of the abolition of the concept of domicile. This is replaced with a regime linked to the number of years of UK residency, which is colloquially referred to as the foreign income and gains regime (FIG regime). Although this is not a statutory term, it is used in this guidance note as a useful shorthand to reference the new regime. This regime is open to anyone who meets the residence conditions, including those who would have been considered UK domiciled prior to 6 April 2025. The FIG regime applies to the individual’s first four tax years of UK residence and means that the individual is not taxable in the UK on foreign income and gains arising in that four year period (with some exceptions).Note that this does not mean the remittance basis rules can be forgotten, as advisers will still need to know and be able to apply the current

Employment intermediaries: reporting requirements

Employment intermediaries: reporting requirementsIntroductionAs from 6 April 2015, a reporting obligation applies to employment intermediaries, requiring them to make quarterly returns to HMRC in respect of the workers they use to supply services to their clients where PAYE is not operated in respect of those workers. This reporting requirement is embedded in the PAYE regulations, despite applying to intermediaries who may have no direct employees, no PAYE scheme and no current exposure to the PAYE regime. The HMRC guidance is at ESM2070 onwards. Not only does it apply to employment agencies and intermediaries such as personal service companies (PSCs) or managed service companies (MSCs) but also to any business which uses freelancers to supply services to its clients, even if only to supplement the services supplied by its own workforce.The reporting obligation is completely detached from the RTI system and requires online submission of a free-standing quarterly report.There are penalties for late, incomplete or incorrect returns.Who is affected?This reporting obligation falls on any employment intermediary who has a contract with the third person in respect of the work being done, but only if the intermediary provides more than one worker to the client. The reporting is therefore intended to affect employment agencies and other businesses supplying workers.In this context, an employment intermediary has a very wide meaning. It is a person who makes arrangements under which (or as a result of which) an individual works for a third person or receives payment for work done for a third person.

Seafarers’ earnings deduction

Seafarers’ earnings deductionThis guidance note sets out the conditions for workers on board a ship to obtain a 100% deduction from UK employment income for income tax, where work is partly or wholly overseas. The national insurance position is also considered. See also Checklist ― seafarers’ earning deduction.Working on board a ship, conditions for claiming seafarers' earnings deductionIndividuals who are employed on a ‘ship’ may claim a 100% deduction from UK earnings for income tax, where duties are performed wholly or partly outside the UK, during an eligible period. The deduction is usually referred to as the seafarers’ earning deduction (SED). The conditions are rigorous and are subject to anti-avoidance provisions. As will be seen below, the definition of seafarer is wide and can cover, for example, entertainers working on board a cruise ship. The definition of ship for SED excludes oil and gas exploration, and has implications for divers, especially where work may be within the UK continental shelf (see working as an employee on board a ship, below).The SED will be considered under the following headings: •employee tax residence and location of work •working as an employee on board a ship•qualifying periods •anti-avoidance •claims, notification and returns •pension payments, High Income Child Benefit Charge and student loans •national insurance.Employee tax residence and location of workSED is available to UK tax resident employees and to EEA resident employees who are seafarers. In both cases, SED is against UK employment income from

DPT ― entities or transactions lacking economic substance

DPT ― entities or transactions lacking economic substanceA charge to diverted profits tax (DPT) for an accounting period can arise if one or more of the following three scenarios apply:•a UK company uses entities or transactions which lack economic substance•a non-UK company uses entities or transactions which lack economic substance•a non-UK company avoids creating a UK permanent establishment (PE)FA 2015, s 77(2)This guidance note sets out details of the charge to DPT in respect of the first two scenarios. Detailed examples of section 80 and section 81 cases can be found in HMRC’s guidance at INTM489780 onwards, including the application to particular types of assets and industries.See the DPT ― avoidance of UK permanent establishment guidance note for details of the charge arising in the third scenario.FA 2015, ss 80 and 81 are an extension of the UK transfer pricing provisions in situations where profits are diverted from a company with a UK corporation tax presence, to related persons (related by the ‘participation condition’ set out below), that give rise to a significant tax reduction as defined under the DPT legislation (using the ‘80% payment test’ ― see below). The related persons can be based either in the UK, by being resident or by having a PE in the UK (broadly in circumstances where advantageous UK tax arrangements apply), or outside the UK. Like the UK transfer pricing rules, reference is made to provision (the ‘material provision’) made or imposed between two persons (in the case

Weekly tax highlights ― 3 March 2025

Weekly tax highlights ― 3 March 2025Direct taxesReforms to IHT reliefs: consultation on property settled into trustHMRC has launched a consultation on the proposed reforms to agricultural property relief and business property relief from 6 April 2026, focusing specifically on their application in relation to trusts.HMRC is seeking views on the application of a £1 million allowance for property settled into trust that qualifies for 100% agricultural property relief or business property relief. The changes are set to take effect from 6 April 2026, with transitional provisions for transfers made before this date. The consultation also addresses the introduction of an anti-fragmentation rule to prevent the division of property into multiple trusts to avoid tax liabilities. The consultation closes on 23 April 2025.See Simon’s Taxes I7.103, I7.304.Co-ownership Contractual Schemes (Tax) Regulations, SI 2025/200These Regulations set out the tax rules for the reserved investor fund (RIF) and make associated changes to the tax rules for co-ownership authorised contractual schemes (CoACS).These Regulations:•set out the tax rules for investors in a new type of investment fund, the reserved investor fund (RIF). A RIF is not itself a taxable person, but it is subject to qualifying criteria, conditions, and obligations to provide notices and information to its investors and to HMRC, and the Regulations set out some of those rules;•provide minor changes to the tax rules for life insurance companies investing in CoACS, a similar type of investment fund. The changes provide consistency on the interaction between parts of the capital

Indirect and third party relationships ― overview

Indirect and third party relationships ― overviewThere are a variety of working relationships between workers and clients. The most common relationship we address in this module is that of employee and employer; however, there are also a variety of indirect and third party relationships where the work is not carried out by an employee of the ‘client’ ― the end user of the services. There is a wide range of working relationships and these can be complex in terms of PAYE treatment (references in this topic to PAYE include income tax, NIC and other payroll costs, such as the apprenticeship levy, as relevant). The most well-known example of a third party relationship is that of a worker with their own personal service company (PSC). They are the sole director and shareholder of that PSC and the PSC has a contract to provide services to the client. The worker therefore has no direct contractual relationship with the client.Indirect and third party relationships ― signposting of main guidanceThe method by which an individual is engaged and the type of ‘client’ they work for will determine the tax and NIC considerations in most cases. The table below sets out where to find the main guidance for the more common forms of engagement:DescriptionGuidance notesEmployment status tests ― the guidance on how to assess whether a worker is an employee or not, which is the basis on which the off-payroll working rules are appliedEmployment status ― why

Location of employer and effect on liability

Location of employer and effect on liabilitySTOP PRESS: The remittance basis is abolished from 6 April 2025, although this only applies to foreign income and gains arising on or after that date. The remittance basis rules still apply to unremitted income and gains arising before that date but remitted later. The legislation is included in FA 2025. For more details, see the Abolition of the remittance basis from 2025/26 guidance note.Taxation of UK employmentWithdrawal of non-UK domicile basis of taxation from 6 April 2025It should be noted that the non-UK domicile basis of taxation (on which most of the reliefs described below are founded) is abolished from 6 April 2025. These are replaced with a new system of reliefs for qualifying ‘foreign income and gains’ arising for the first four years following UK arrival. For fuller detail of the new rules and reliefs please refer to the separate Overseas workday relief and Abolition of the remittance basis from 2025/26 guidance notes. Where reference is made to non-UK domicile in the remainder of this guidance note, this is intended to provide information on the previous taxation system which applies to 5 April 2025 only. This may be useful for historical context. Also in the case of an individual who had established a non-UK domicile at 5 April 2025, they may still have unremitted (therefore, as yet untaxed) income at that date. Taxation of UK employment ― to 2024/25Non-resident employees’ UK-based earnings are taxed under ITEPA 2003, s 27. Employees who