Fit for the future? It’s time the oil and gas industry had a tax health check

By Jane O’Berg, Johnston Carmichael’s director of Global Mobility

To say that the oil and gas industry has had a lot to contend with over the past year would be putting it lightly. 

With pressure mounting to align with the Paris climate agreement and unlock an affordable net-zero energy future, coupled with the logistical chaos and unpredictable trading conditions caused by coronavirus, there’s been a lot on the minds of CEOs looking to ensure their people and companies are fit for the future.   

Although the sector is already balancing a number of priorities, one it can’t afford to overlook is tax compliance - particularly as the industry continues to deal with a distributed workforce following the pandemic and navigates new commuting patterns for employees against the backdrop of new UK immigration rules.

Back in March 2020, there was an understandable rise in requests for remote working, especially from non-UK nationals living and working in the UK for UK-based companies who wanted to go home to be with their families. Employers had staff dispersed in different countries for longer periods than originally anticipated, creating unexpected tax implications.

The oil and gas sector is one example of an industry still dealing with this hangover. Having employees stranded overseas not only causes considerable welfare concerns, but from a tax perspective it can also create an element of risk and exposure for both the employer and the displaced individual.

Issues may include the requirement for a new payroll on the employer’s behalf, the employee creating a tax liability for themselves and questions around the individual’s tax returns and social security position. 

Many of the industry’s contractors work overseas which has an impact on their individual UK income tax liability. Social security has always been a complex issue for offshore workers, with a number of factors having to be taken into consideration to determine where contributions are paid. With the events of the last 18 months, which may have seen employees stranded out of the UK or vice versa, the position for both employee and employer could have changed, impacting both parties in a variety of ways, including potentially increasing costs for the employer.

Due to the complex social security rules offshore workers face, it’s good practice for the industry to regularly review the position of its employee population to check employer and employee contributions are being paid in the correct jurisdiction. We are seeing an increasing number of queries from individuals who have made Class 1 UK National Insurance Contributions (NICs) but who now believe they are due a refund due to the length of time they have been out of the UK and the country in which they have been working.

After a review, the employee may well be due a rebate, but if they’re not making NICs in the UK, do they have a liability arising in the overseas location where they’re currently based and if so, how is this going to be settled? Equally the same considerations have to be given to the employer contributions. Have they been paid in the correct location and if not, how can this be rectified and contributions made in the correct jurisdiction going forward? We would always recommend the employer and employee positions are examined together to ensure a consistent approach is taken and obligations for both parties are fulfilled.

To navigate further avoidable costs, oil and gas employers need to take stock of the new UK immigration rules post-Brexit. A recent survey from Sterling found only 23% of UK businesses were comfortable with the new regulations, but with travel restrictions between the UK and Europe set to ease and regular commuting between platforms and company offices on the horizon, the oil and gas industry needs to ensure it keeps abreast of the changes associated with work travel.

There are more legalities with potentially different documentation being required from an immigration perspective and companies should also be aware of the EU Posted Worker Directive.

The latest revision to the directive had to be transposed into national laws by last July, and as that was the only mandate, there are variations on how each EU country has adopted the rules and processes. Some countries have opted for a ‘belt and braces’ approach, applying the legislation to all workers entering their country no matter how short a period of time.

While the energy transition must remain the priority, the industry needs to ensure it has robust processes in place for its globally mobile employees to monitor and manage any compliance, financial and reputational risks and exposures resulting from their travel - particularly as the sector is in focus now more than ever.

Read the latest issue of the OGV Energy magazine HERE.