The globalisation of business means that employees are more mobile than ever, and this makes it more difficult to ensure that their tax and social security position is correctly managed – particularly as UK legislation is continuing to evolve.
Two areas subject to new guidance are the Business Visitor rules and the Statutory Residence Test.
The introduction of Real Time Information, has forced UK employers to provide employee PAYE details. But if the person is in the UK for less than half the year, it may be possible to use the Short term business’ visitor scheme instead.
The scheme applies where:
- Relief from UK tax would be due under a double-tax treaty with another country
- The person is employed overseas and their employment cost is not borne by a UK company, branch or office
- The person is in the UK for less than 183 days in 12 months or the tax year
Employers must apply to HMRC to operate the scheme, and if permission is granted, they are relieved from PAYE reporting requirements for those business visitors. However, the employer must provide specific information by 31 May after the end of the tax year.
Statutory residence test
When the statutory residence test was introduced in 2013 to determine a person’s status for UK tax purposes, there were problems regarding employees who had contract terminated and were on garden leave during their notice period.
HMRC has now agreed that garden leave will be treated as a usual day of work, and the person’s physical location will determine whether it is treated as a UK or overseas workday.
This seems straightforward, but problems can occur if an employee’s residence position is being determined under the third automatic overseas test (working full time overseas) or the third automatic UK test (working full time in the UK).
These tests define a workday as any day on which three hours work is undertaken. But during garden leave the employee does no work, so the period cannot be counted as a workday.
So HMRC has decided that garden leave should be treated in the same way as annual leave, which means that:
- Garden leave does not count as a significant break from UK or overseas work as they are days on which more than three hours work would be performed
- In calculating the reference period for full time work, any days spent on garden leave are deducted in the same way as annual leave
- No credit is given for the hours that would have been worked in the sufficient hours calculation
- Total number of daily hours actually worked will be less than the three required for a workday.
Whenever a period of garden leave arises, consideration should be given to the impact on an employee’s residence position.