When an employee is paid or receives benefits abroad, accounting for UK National Insurance Contributions (NIC) in real time is complex – especially where overseas and UK pay periods don’t align. To help, employers can apply to HMRC to run special modified payrolls.

Do globally mobile employees have to pay NIC?

When an employee is assigned to the UK, they are potentially liable to both UK tax and NIC. UK tax is often higher than those they would have paid at home, and any NIC they pay may provide them with little benefit. They may also need to keep paying social security in their home country.

An individual who is assigned to the UK from the European Union (EU) or Iceland, Lichtenstein, Norway and Switzerland (EEA) may remain in their home country social security if the assignment is for less than 24 months. If the assignment is longer than 24 months from the outset, then NIC is payable from the first day worked in the UK.

In addition to the countries above, the UK has a number of social security agreements that allow individuals to continue paying their home country social security for a specified period (eg five years for the US and three years for the new agreement with India). Always review the relevant agreement to confirm the exact period and any other conditions that apply.

Where there is no social security agreement, an individual assigned to the UK is normally exempt from UK NIC for the first 52 weeks. They then start to pay NIC from the start of week 53.

Similar rules apply to UK employees being assigned overseas.

What is the benefit of paying NIC?

An individual who pays NIC will be entitled to the UK state pension if they contribute for at least 10 years. On reaching the state retirement age, the individual will receive a portion of the state pension based on the number of contribution years (up to 35 years). For many short-term assignees, paying NIC will not entitle them to even the minimum state pension.

When employers pay NIC

Where NIC offers little long-term benefit to the employee – and they may also be contributing to their home scheme – many employers choose to pay the NIC on their behalf.

With this arrangement, the contributions must be grossed up through the normal UK payroll. This can be problematic where employees receive salary in different jurisdictions, bonuses decided after year‑end and equity, allowances or benefits paid overseas.

Appendix 7A NIC payroll – inbounds

An Appendix 7A NIC payroll can be used to ease reporting requirements in the tax year, when:

• The employees are fully tax equalised (and an Appendix 6 modified payroll must be in place)
• The employees earn above the upper earning limit (UEL); and
• They receive earnings or have benefits paid outside the UK.

This payroll allows an employer to operate UK NIC on an estimated basis with the final position being confirmed after the end of the tax year.

As with a tax modified payroll, an estimate of the employee’s annual remuneration (including benefits) is prepared at the start of the year. This forms the basis of Full Payment Submissions (FPS) and tax payments to HMRC, and is updated throughout the year to reflect actual income and benefits. The employee then prepares their UK tax return showing the final figures and submits it to HMRC by 31 January following the end of the tax year.

An NIC settlement is then filed by 31 March based on the final employment income shown in the tax return. Provided any additional NIC is paid by 31 March, there is no interest due on the settlement amount.

Appendix 7B NIC payrolls – outbounds

Employees who are assigned abroad may still be liable to UK NIC if they hold a certificate of coverage (eg USA) or A1 (for the EU/EEA).

Alternatively, if going to a country without a social security agreement with the UK, they may remain liable for UK NIC for 52 weeks.

Where UK NIC are due, the UK payroll must account for amounts owed on the individual’s remuneration. If they are paid via an overseas payroll, this can create timing issues when remuneration is unknown at the point the UK payroll is run. The payroll can be used where the individual:

• Is employed by a UK employer and assigned to work abroad for a period of limited duration, but for more than a complete tax year
• Has an ongoing liability to UK NIC whilst abroad
• Earns above the (UEL) in every earnings period throughout the tax year
• Is not liable to UK tax on their earnings from employment; and
• Receives some earnings and benefits from the employment from sources other than the UK employer.

As with the Appendix 7A payrolls, an annual estimate is prepared at the start of the tax year and updated to actual as the year progresses. The NIC settlement is filed by 31 March following the end of the tax year along with the payment of NIC.

What should employers do?

For employers with qualifying employees, the Appendix 7A and 7B payrolls make NIC reporting far easier. The total NIC due for the year doesn’t change, but the practical challenges of gathering overseas information to run a UK payroll in real time are significantly reduced.

RSM can provide tailored advice on applying for and operating modified payrolls, in addition to further guidance on internationally mobile employees.

To discuss how we can help you manage NIC for globally mobile employees, please get in touch with Ian Jones, Jo Webber or your usual RSM contact.

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