HMRC has stated that as of April 2014 they are taking a stricter approach to the operation of UK payroll taxes in relation to overseas employees coming to the UK to work for short periods. A host UK employer must obtain formal agreement from HMRC that they can operate a Short Term Business Visitors Arrangement.
For business visitors covered by the arrangement (broadly speaking where exemption from UK income tax is available under a double tax treaty), this will mean UK payroll deductions will not be required. A payroll must still be operated in most situations where the employee is subject to UK income tax.
A Short Term Business Visitors Arrangement may be relevant for individuals in the UK on formal short assignments as well as those in the UK on business trips. We find that organisations with IT/management consultants and engineering/construction projects are particularly vulnerable due to the often short nature of their UK work.
Claiming exemption from UK tax under a double tax treaty is not simply a case of the individual being in the UK for less than 183 days, it also depends on whether costs are ultimately borne in the UK. Where it is argued that the employee is in the UK working for the benefit of the overseas employer and not the UK company, there could conversely be a risk that HMRC take the view that a UK permanent establishment of the overseas organisation is being created. These rules have not changed.
It is also important to note that these rules only apply to income tax so a separate review of UK social security tax/National Insurance contributions should still be conducted.
Where benefits are paid by the UK employer, the treaty conditions will not be met in relation to those UK benefits because they are not paid by the overseas employer (unless there is a corresponding recharge to the overseas employer).
60 day rule
HMRC’s view is that if the individual is present in the UK for less than 60 days, then treaty relief is likely to be available even if costs are borne in the UK. This is only if the individual remains answerable to their home country employer, they do not have a senior role with the company and the 60 days does not form part of a longer period of UK presence.
An employer will usually be required to operate a UK payroll if UK tax is due or if exemption is available under a double tax treaty, but there is no Short Term Business Visitor Arrangement in place with HMRC.
Companies should review their current short term business visitors arrangements to ensure that they, and their overseas employees and directors, are compliant, and have a robust process for identifying, tracking and managing business visitors to the UK. They should consider getting a Short Term Business Visitors Arrangement with HMRC to relax certain PAYE withholding obligations.
For more information, please contact Mark Abbs.