Intra-Company Transfers (ICT) - Jobs and skills lost to migrant workers

and upwards of £250 million per annum in lost revenue

 

When is a salary not a salary? As Bill Clinton once said it depends on what you mean by ‘is’ is. The UKBA policy from 2000 continues unchanged in 2010 under the new administration and we are paying for it with our jobs and the Government is losing tax revenue. It is an issue which particularly affects the Information Technology services industry.

ICT Allowances - A worked example put to the UKBA

 

This example shows just how much tax and NI is lost per year when a company ‘onshores’ a migrant worker into the UK and pays them using the UKBA ‘Salary Package’ rate which can include business expenses, rather than paying the worker a true taxable salary as would be the case if they employed a resident worker instead.

 

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The full FOI Request EFM 3136 can be accessed here When is a salary not a salary? The replies to this FOI request are revealing for the insight into the thinking within this organisation as much as anything else, it has been going on since the year 2000. This FOI request and example was handled by a senior member of the UKBA Immigration policy team. In it the UKBA confirms that it didn’t stress test its policy with HMRC to confirm the revenue implications to the UK Exchequer and this was also confirmed in the reply to FOI request 2693/10 by HMRC. Even with only partial data available from the UKBA from 2009 through to October 2010 nearly 38,000 IT workers came to the UK on Intra-Company Transfers. None of these IT roles were on the skills shortage occupation list

In an interview in the Daily Telegraph on 28th August 2010 Amzin Premji the head of Indian IT services company Wipro says

"What you must appreciate is that an average engineer in India costs about $7,000, while an average engineer in the UK would cost about $45,000 a year"

How likely do you think it is that when Wipro brings ICT staff into the UK from India their taxable earnings are increased to that $45,000 average level?  It is not even necessary as the UKBA has actually framed their rules to allow sponsors to include business expenses into the 'salary package' rate for the job, which must be met when applying for a work visa. Whereas once in the UK and working, HMRC correctly, does not treat such business expenses as a salary component. In email correspondence with the UKBA for FOI Request EFM 3136, in the reply dated 10/01/2011, they say the inclusion of these allowances in the 'salary package' “….. avoids the need to raise the employee’s base salary and then lower it again when they return overseas. We do not consider this practice to be unreasonable.”  Cha-ching another visa issued by the UKBA and an offshore worker can undercut a resident worker.

The $45,000 average also only tells part of the story because as people in the IT industry know, it is not just the generic skill but the skill and product combination which determines pay rates. One would have thought that making such a check would be standard procedure when vetting ICT visa applications by the UKBA. Certainly Salary Services Limited which provides salary data to the UKBA could provide this level of detail as well. Unfortunately the UKBA only looks at the generic job role for salary comparison purposes, using the lowest quartile rate. With the inclusion of business expenses into the ‘salary package’ accepted by the UKBA, is it any wonder that companies claim that there is a skills shortage in the UK and Europe, which luckily can be addressed from outside of the EU? If you were in a position to take advantage of such rules wouldn’t you?

The current UKBA rules actually act as an incentive for companies to use ICT migrant workers rather than resident workers. This was recognised by the Migration Advisory Committee  in November 2010 in a report to the Home Secretary where they were specific in how business incurred expenses should be treated.

“In the context of limits on work related migration, consideration should also be given to awarding zero points for allowances under the PBS.

Our suggestion to alter the recognition given under the PBS to often tax-free allowances used by intra-company transferees will help to ensure that such migrants make a full contribution to the UK Exchequer.”

You can read the full MAC advice to the UKBA on excluding allowances and expenses here Migration Advisory Committee Limits on Migration Nov 2010 paragraph 9.166. Why has the Government decided to ignore the MAC on this issue? Do they understand what regulatory capture is? Maybe other organisations have the Governments ear instead.