Tax compliance for your UK-posted staff can be complex. Here are some pointers, based on our extensive experience at Odiri Tax Consultants.
1. Basic Requirements for Employers:
If you have a UK-based company, employing staff, then you must operate the UK PAYE (Pay As You Earn) system. This involves the employing company in collecting, at source, the applicable Income Tax and the employee NI (National Insurance) contributions – via deductions from their weekly or monthly pay.
If, on the other hand, you have staff based at their UK homes, you do not have an actual physical company facility like an office, factory or warehouse in the UK, and consequently you do not have a ‘tax presence’ here, you do not have to set up a PAYE arrangement. In such case, the employee must operate PAYE direct payment scheme in respect of his/her own income.
For these PAYE/NI purposes, it is irrelevant whether your company is subject to UK Corporation Tax. Odiri Tax Consultants can advise you on the subject of your obligations for this tax, based on your particular circumstances.
2. Basic Requirements for Employees:
Essentially, any employed member of staff who is operating in the UK is normally subject to the UK tax regulations. It matters not whether the person works out of an office or at their UK home base.
Whether they have foreign or UK resident status is irrelevant in income tax terms: they are liable. A short-term assignment still means that they are caught by HMRC on their UK earnings.
(However, see below for the Double Taxation possibilities).
3. National Insurance Situation:
Currently, an EU resident working in the UK benefits from the reciprocal short-term arrangement whereby member states will provide emergency health care to EU visitors and will not require local social security payments to be made. Some other reciprocal agreements exist between the UK and other countries. The post-Brexit situation is as yet unclear.
There are also specific exemptions for a lot of workers: ‘certificates of coverage’ remove the requirement for them to make National Insurance Contributions within the initial 52 weeks that they spend working here. Generally, this includes EU-resident workers and those from other non-reciprocal agreement countries. Odiri Tax Consultants will advise you on a case-by-case basis.
4. Double Taxation Agreement Benefits
The UK has set up Double Taxation Agreements with many other countries. These set out which country will be paid the income tax; and they avoid the employee paying twice. If the worker’s home country is accepted as being the ‘primary taxation authority’, he or she will not be subject to UK income tax when they work here. ‘Treaty Relief’ can often be claimed, usually when the UK working period is short and the firm concerned is overseas.
If it can be shown that a workers’ activities in the UK are only incidental to their home-country core employment, this can also be an argument for avoiding the payment of UK income tax.
However, as is so often said, ‘terms and conditions apply’. Treaties and cases do vary – and here again, we will advise you on any situation.
5. How workers can assess their UK Income
If employer has no UK presence, the employees have basically two options for reporting their income tax:
5.1 Self-Assessment
In the same way as the UK self-employed, freelancers or consultants, they can choose to follow the self-assessment means of recording their income. They will pay tax in two tranches – the first during the tax year and the second following the end of the tax year.
5.2 RTI (Real Time Information)/PAYE/NIC
Foreign companies with no specific UK presence may pass over to the UK-based worker the responsibility for reporting to HMRC (via the RTI rules); running their own personal PAYE scheme; calculating and then using a Direct Payment Scheme to submit their Income Tax and any NIC dues.
These onerous tasks make it a less than attractive option for most workers: although Odiri can of course relieve much of the burden.
If NIC is deemed to be a liability of the employee in a particular case, that person must follow the Direct Payment Scheme route.
6. Becoming ‘UK Resident’
Another potentially complex issue can be whether a person has ‘UK Residence’ status. Those who live abroad but have family links in the UK; those who visit frequently and for significant parts of a year; and ultimately even those who elect to be buried in the UK; these and other factors have led to ‘UK Resident’ classifications in judicial test cases that have been swayed by HMRC’s Statutory Residence Test,
Certain classes of exempt days spent in the UK can be taken into account within the rules – for example:
- If you are only forced to be here as a result of ’exceptional circumstances’ that are beyond your control
- If those circumstances make it impossible for you to depart
- If your intention is to depart as soon as you are able
When these exemptions are not sufficient, and a person (voluntarily or involuntarily) becomes classed as a UK resident, it is possible that they will have to pay UK Income Tax on all of their income worldwide.
Odiri Tax Consultants advise individuals on strategies to avoid excessive tax demands, which in some cases may include non-domiciles choosing the remittance basis of taxation.
For this and all other corporate and personal tax matters, please seek our advice – contact Odiri Tax Consultants at 01-73-380-8075
