With employees once again travelling for work purposes, it’s vital for employers to understand the UK tax implications and obligations that come with this.
The strict position is that where an individual works in the UK, their earnings are subject to UK tax, even if this is just for a few days. There are two exemptions to this arrangement, which are available if either:
1 - the duties in the UK are incidental to the overseas role; or
2 - individuals are exempt under a double taxation agreement (See below).
If the employer has a ‘tax presence’ in the UK and without either of the above exemptions, PAYE should still apply to an employee’s earnings.
Just because an overseas employer has individuals working in the UK, this does not necessarily mean that the company will have a ‘tax presence’ in the UK.
A ‘tax presence’ can be a branch, agency or office in the UK. HMRC essentially require a UK company address to contact the employer at i.e., to send them PAYE related correspondence and take further actions if needed.
The employee can apply to HMRC for a ‘Direct Payment’ scheme. HMRC will then assist the individual with calculating the correct amount of income tax and National Insurance due.
With regards to double tax treaties exemption mentioned above, an employer can apply for an ‘Appendix 4’ agreement. Essentially relaxes the PAYE requirements and significantly reduces the employer’s PAYE obligations, as long they meet various conditions.
Once the Appendix 4 agreement is in place, there is no requirement for the employer to deduct PAYE. Instead, they must file an annual report to HMRC. Providing details of individuals who have visited the UK during a certain tax year and any additional information HMRC require (based on the number of days they spent in the UK per year).
Please reach out to us should you require further guidance in relation to Appendix 4 agreements.
Generally speaking, there is no requirement for an employer to withhold PAYE from an employee who is non-resident in the UK and working overseas.
Where a non-resident individual spends workdays in the UK (which aren’t incidental to their overseas duties, i.e. not training or meetings), PAYE has to apply to their earnings.
If a UK resident individual is working overseas, UK PAYE continues to apply to their earnings, regardless of where pay comes from.
There are often cases where an individual is subject to tax in two jurisdictions on the same income. In this case, an employer can make an application to HMRC to use the ‘net of foreign tax credit scheme.
This scheme allows HMRC to offset any overseas taxes due against UK PAYE each month, helping with cash flow management for the individual and providing double tax relief on a real-time basis.
If an individual is breaking UK tax residence, and a P85 is submitted to HMRC in order to obtain an NT tax code, this code can be put in place by the employer, and no PAYE withheld.
Please contact ETC Tax if we can help with employer UK tax obligations for employees on assignment.
