The writing is on the wall for offshore employment intermediaries based outside the UK who fail to pay the correct employers’ National Insurance Contributions (NICs), following yesterday’s Budget, according to the director of global tax services at Ernst & Young.

During his statement the chancellor issued a stark warning to such companies, many of whom are based in the Channel Islands and the Isle of Man: “My message to those who make a living from advising people how to aggressively avoid their taxes is this: this government will not let you get away with it.”

The chancellor also warned that the government would also “name and shame” promoters of tax avoidance schemes.

Such schemes have steadily risen up the Coalition government’s agenda as part of its efforts to crack down on tax avoidance. 

In the Treasury’s Red Book that accompanies the Budget, the government states its intention “to consult on strengthening obligations to ensure the correct income tax and NICs are paid by offshore employment intermediaries”.

But even before the consultation has begun, John Chaplin, director of global employment tax services at Ernst & Young, tells Recruiter that he is in no doubt about the outcome which is a change in legislation in 2014. 

“I would be amazed if it wasn’t aimed at closing what is perceived to be a tax leakage in this case of employers’ NICs in respect of people working and earning their living in the UK,” he says. 

The government is determined to close a loophole, which means that employers pay no NICs. Chaplin explains: “Effectively you have got UK-based people working in the UK for UK employers but simply because the payment and employment mechanism is based outside the UK, employers’ NICs are avoided.” The loophole is responsible for a leakage to the Exchequer of at least £100m a year, he adds. 

Matthew Brown, managing director of giant group, also welcomed the clampdown: “We recognise that the majority of businesses pay all necessary NI, but for those who don’t, it can have a severe affect on employees. With stricter rules, there will be a much wider access to benefits, such as sick pay or maternity pay, which can only be a positive outcome for contract workers.”

Tom Hadley, director of policy at the Recruitment & Employment Confederation (REC), applauds the crackdown, which he says “is heartening news”. “For too long, recruiters who abide by the rules have been disadvantaged by less scrupulous businesses who skirt round the law,” says Hadley. 

Not everyone was so enamoured by the news, with Andrew Webster at Outsauce, a company that provides funding and back office support to recruiters, saying that while the chancellor was strong on rhetoric “the detail was woolly at best”.