GME PAYE: a new way forward for internationally mobile employees

Payroll obligations are always more complex with internationally mobile employees. The ability to work in different countries can lead to multiple payroll obligations for employers and cash flow issues for employees.

From 6 April 2025, new rules for UK pay as you earn (PAYE) deductions have come into force. Complexities through the process remain, so here we set out what the changes mean for employees based on their tax status.

Previous rules for UK PAYE deductions

UK employers are required to deduct PAYE from their employees’ remuneration. That includes remuneration of employees who are only taxable on their UK workdays (because they are either non-UK resident, treaty non-residents or qualifying new residents under the new foreign income and gains regime).

For globally mobile employees, having PAYE deducted from 100% of their earnings can lead to cash flow issues, especially if tax is deducted in overseas countries at the same time. Employees are able to reclaim the tax on non-UK workdays, but it’s up to each employee to complete a UK tax return to arrange this. Refunds to non-UK residents can have their own practical problems too.

It was possible for an employer to apply for an s690 PAYE direction from HMRC stating that only a portion of an employee’s earnings should be treated as PAYE income. An employee would then file a tax return declaring the actual amount of earnings taxable in the UK. However, as HMRC needed to approve the direction before it could be used, many employers would be waiting over six months for confirmation. And once in place, the direction would be applied to all of an employee’s remuneration. This could create more complications in cases where the employee’s remuneration included trailing income (eg a bonus) for work performed in an earlier tax year.

What has changed following the UK PAYE updated rules on s690?

The UK government has substantially changed the rules on s690 directions which came into effect from 6 April 2025. The process for applying for a globally mobile employees and pay as you earn (GME PAYE) direction is simpler, but the rules for performing the direction are far more complicated. Adding another layer of complexity, all s690 rulings issued under the old rules for 2025/26 and onwards are invalid, and employers need to make new applications.

HMRC has created a new software application for employers (and agents) to apply for a GME PAYE direction. Once submitted, HMRC will send an auto response and the employer can immediately use the proposed percentage for payroll. HMRC can later review the application and, if it disagrees, issue a new direction.

Since 6 April 2025, this is how the new rules work in practice:

• For non-tax resident employees (for all or part of the year) who work partly in the UK and partly overseas: Employers can make a GME PAYE notification for ‘uncertain payments’, which is made up of earnings relating to both UK and overseas workdays. The GME PAYE notification does not apply to remuneration when the UK taxable portion is known (eg a bonus relating to a year when the individual was wholly UK tax resident).
• Qualifying new residents: An employee can elect for up to 30% of their overseas workdays to be exempt from UK tax (capped at £300,000). An employer can make a GME PAYE notification for ‘qualifying payments’ from ‘qualifying employment income’, which is an employment performed both in the UK and overseas.
• Tax treaty non-resident employees: An employee who is treaty resident under a Double Tax Treaty is only taxable on UK workdays. An employer can make a GME PAYE notification stating the proportion of the employee’s income which is expected to relate to duties performed outside the UK.

Employers can make multiple notifications during the year and will need to do this when the employee’s residence status changes (for instance from a non-resident to a qualifying new resident). There are also special rules for trailing income that relates to the tax years 2024/25 and earlier.

What’s next for employers?

As any s690 direction issued before 6 April 2025 is now invalid for 2025/26 onwards, employers (or their agents) will need to apply for new GME PAYE directions for each relevant employee before the first payroll for 2025/26 is run. Otherwise, the employee’s pay will have PAYE deducted from the full amount and they will need to file a tax return to get a refund.

RSM can help you in making the applications and advise on the complex issues that can impact employers and internationally mobile employees. To discuss this further, please contact Ian Jones or your usual RSM contact.