It is common for overseas employees of international businesses with UK operations to visit the UK for short term business trips. UK businesses should be aware that income tax and National Insurance Contributions (NIC) obligations may be triggered in respect of such employees from day one in the UK.
Where an employee of an international business visits the UK for a short term business trip and performs substantive duties of their employment during that visit to the UK, the UK operation can be required to operate income tax and NIC on their earnings under PAYE from day one. This is the case regardless of how long the employee will spend in the UK during the tax year, and which entity ultimately pays their earnings.
HMRC’s stance on internationally mobile employees has become firmer and where non-compliance with PAYE obligations is identified, it may seek to recover the underpaid tax and NIC from the UK business together with penalties and interest charges.
A UK operation with short term business visitors to the UK should therefore consider entering into a short term business visitors arrangement (STBVA) with HMRC. Where such visitors are from a country with which the UK has a double tax agreement (DTA) containing a relevant employment income or dependant services article, the STBVA can remove the need for the UK business to operate PAYE in certain circumstances. NIC will, however, need to be considered separately. An STBVA report will need to be submitted to HMRC by 31 May following the tax year.
There are a number of factors that need to be considered before making an application for a STBVA, including:
- the concept of economic employer versus contractual employer;
- whether the individual visiting the UK is working for an overseas branch of a UK company; and
- the nature of any internal recharges.
Having a robust tracking system in place for internationally mobile employees is also a key requirement of an STBVA.
In summary, an STBVA can have the following benefits for the UK business:
- it addresses the cash-flow issues and the administrative burden around tax withholding obligations for these visitors to the UK;
- it avoids the time and expense of filing UK tax returns for these employees to reclaim the UK tax withheld if they would otherwise be treaty protected from UK tax; and
- it gives peace of mind around PAYE compliance requirements for the UK business.
As highlighted above, an STBVA does not apply for NIC purposes. The NIC position must be considered separately and the issue of whether UK NIC needs to be operated will depend on whether there is an exemption available. For example, because the employee’s home country is in the EEA and they have obtained an A1 certificate allowing them to continue to pay social security contributions in that country.
It should be noted that individuals coming from countries with which the UK does not have a DTA, or from overseas branches of the UK entity, cannot be included in a standard STBVA. However, a separate relaxation can be agreed with HMRC for such individuals who spend 30 workdays or less in the UK in the year. This relaxation allows an annual payroll submission to be made after the end of the tax year, with any tax being due by 19 April following the tax year end.
An STBVA cannot be applied in respect of non-UK resident company directors who are visiting the UK. For non-UK resident company directors visiting the UK from overseas we recommend that advice is taken regarding the UK tax and NIC position as early as possible.
RSM can assist you with considering the UK PAYE, tax and NIC obligations arising in respect of your internationally mobile employees and directors. We can, for example, provide guidance on making an STBVA application to HMRC, and advise on systems for monitoring and recording employee movements.
Where internationally mobile employees and directors have not been treated correctly for tax and NIC purposes in the past, we can also assist with identifying any potential exposure for earlier years and how the position can be regularised with HMRC.
For further advice please contact Lee Knight.