With the rise of global mobility, people move around in a wider variety of roles for many reasons. It is therefore important to understand the interaction of taxes across multiple territories. The global mobility team in Menzies can guide you to help understand the tax and social security system in and out of the UK and minimise the complexities that can arise by moving in and out of the UK.
In conjunction with fellow HLB international firms, we can help you to understand the rules in both jurisdictions so you can plan from a position of full understanding at the outset.
Watch our introduction to Coming to the UK
Understanding the right to work in the UK
It is important to check if a person has the legal right to work in the UK before they start work. You can check this on the government website or take professional advice.
Understanding the cost of assignment
An overseas assignment can result in significant additional costs for the employer and employee. Travel, accommodation and subsistence expenses are often paid for by the employer. Differences in cost of living or compensation for the inconvenience of moving often results in additional allowances being paid as compensation during the assignment. There may also be family support and school fees to be factored into the calculations.
The tax charge for the employee could be higher than had they remained at home. The employer may want to have a tax equalisation agreement in place to ensure the employee’s tax position remains neutral for the duration of the international assignment.
What is Tax Equalisation?
The employer can choose to offer the employee a remuneration package which incorporates tax equalisation, the company pays the assignment related tax and the employee pays the home country tax or equivalent hence keeping the employees in a tax neutral position.
If the employer does not wish to go down the tax equalisation route, they may simply agree that the employee pays all their own worldwide taxes but the company may then need to increase pay for the individual so they are no worse off, in order to persuade them to take the assignment.
It is important that the terms of the assignment are agreed in advance of the move.
The length of the assignment can also impact costs, as the UK tax system has a range of reliefs and allowances that may be available. For example, for the employees who are seconded to the UK for less than 24 months so that the UK could be regarded as a “temporary workplace”, additional tax reliefs are available for the employee’s accommodation costs and travel to and from their temporary workplace.
Understanding the proposed structure of the assignment before the implementation will enable the employer to maximise the tax reliefs available both on income and expenses and benefits for the employee and reduce the overall cost of the assignment.
Expatriate services and advice
Our Expat specialists work closely with our Private Client, International and Employer solutions teams to ensure that the needs of your business and your employees are met. Our specialist service disciplines include:
- Remuneration planning to develop and implement assignment policies and tax equalisation policies.
- Assignment planning to develop an appropriate tax planning strategy to assist with cost control.
- Pre-arrival and departure planning with employees.
- Consideration of residence and domicile issues.
- Preparation of tax returns for employees.
- Provision of UK payroll services.
- ‘Hypo tax’ and tax equalisation calculations.
- Advising private clients who are moving to/from the UK for reasons other than employment.
- Double tax relief claims.
- Social security planning and advice.
- Pension advice.
We are also able to refer you to:
- Immigration specialists to assist with entitlement to work in the UK.
- Relocation specialists to facilitate the move to the UK for employees and their families.
Pay As You Earn (PAYE) Obligation
Any entity that employs or sends workers to the UK and has presence in the UK is required to operate a Pay As You Earn (PAYE) scheme. Where there is no presence, for example, no branch/office or permanent establishment in the UK, the responsibility falls on the employee to administer their own payroll and pay over the tax and NIC to HMRC.
There is a relaxation of PAYE arrangements where the employee is sent from a country which has a double tax agreement or where a tax treaty applies and meets the conditions of the Short Term Business Visitors Scheme.
For a Short Term Business Visitors Scheme to apply the employee must:
- Spend less than 183 days in the UK during a 365 day period as defined by the relevant tax treaty
- Coming to work for UK Company/ branch of an overseas company
- Must be economically employed by an overseas employer
- Remuneration costs are not ultimately charged to UK company/branch.
There may be potential problems if transfer pricing required UK company/branch to pay for employees. But the exemption could still apply where the stay in the UK is less than 60 days.
If the employee works both inside and outside the UK, subject to meeting certain conditions, the employer can apply to HMRC for their agreement to operate PAYE only on the percentage of the employee’s total earnings that are for work carried out in the UK.
Social security
This depends on a number of factors such as who you are employed by, the length of your assignment, the country in which you are based prior to your assignment to the UK and in some case the individual’s nationality.
If an individual continues to remain covered under his/her home social security system, their long term statutory benefits will be unlikely to be affected by working in the UK. They may be able to obtain a certificate of coverage so that additional NIC is not also payable in the UK.
However if their home social security ceases, and the employees is required to make contributions in another country this is likely to impact on their state benefit and pension entitlements in their home country, the impact will depend on the social security agreement , if any, between the UK and the home country. So great care should be taken in considering the impact on the employee’s entitlements before the assignment takes place.
Your next steps
- Consider how best to structure for the assignment to maximise the possible tax reliefs available. Ensure that the assignment agreement is an arcuate reflection of how things will work in practice and if anything changes then the tax impact is considered at the earliest possible opportunity.
- Decide where Social contributions need to be paid and where possible obtain a certificate of coverage or A1 certificate to pay contributions in just one jurisdiction
- For short term business visitors to the UK apply for a short term business visitors’ agreement which will avoid the need to include these individuals on the UK payroll and the completion of self-assessment tax returns
- Where the employee is working in more than one country and is not resident in the UK make an application to HMRC to just payroll the proportion of their duties which are carried out in the UK.