In the last article we looked at the 183 day rule and how the number of days spent physically present in a particular location wasn’t the only “show in town” in terms of determining income tax liabilities and other obligations for an individual working overseas.
Much the same can be said in relation to the income tax liabilities, obligations, implications and considerations existing for individuals from overseas spending time working here in the UK. As indicated in the previous article, the movement of employees around the globe is on the increase and inbound movement of labour from overseas to the UK is no different.
However, what is slightly different to some other locations around the world is the very keen eye that the UK income tax authorities (HMRC) cast on individuals coming to work in the UK from overseas and the UK host “employer” of that individual. The greatest focus of HMRC’s attention in this regard is on those individuals who are on our land or in our waters for short periods of time, whether that be for a short term formal secondment, or a looser business trip type of arrangement.
As discussed in the previous article, a liability to UK income tax may ultimately be avoided when an individual from overseas visits the UK and all of the conditions of the relevant article of the appropriate double tax treaty (also known as a double taxation agreement) between the individual’s country of residence and the UK (assuming a treaty exists) are met.
However, many UK resident employers are unaware that a UK PAYE obligation and liability may be triggered for the UK business, even when the employee’s visit to the UK is for a short period.
If a PAYE obligation is triggered, the UK employer is required to calculate, withhold, report and remit UK PAYE to the UK tax authorities (HMRC) in respect of any individual from overseas who works in the UK for more than 30 days during a UK tax year.
This is the case irrespective of whether either the employer or the employee is certain that an ultimate UK tax liability could be avoided by virtue of a double tax treaty as noted above. In the first instance, the UK PAYE should be paid over and then a UK self-assessment tax return could then be prepared by the individual at the end of the UK tax year to reclaim the PAYE paid if it turns out that treaty exemption was indeed available.
Short Term Business Visitor Arrangement – Income Tax Liability
Thankfully there is a way to avoid this strict PAYE withholding obligation that exists in the UK and that is to apply for a Short Term Business Visitor (STBV) arrangement from the UK tax authorities (HMRC).
Essentially, a STBV arrangement reduces the PAYE administration for HMRC by removing the requirement for the UK resident employer to apply PAYE to individuals who will not have an ultimate liability to UK tax providing certain conditions are met and specific reporting and tracking processes are implemented and followed.
If a STBV application is approved by HMRC, the UK company does NOT need to calculate, withhold, report and remit UK PAYE in respect of any short term business visitors or short term assignees who fall within the conditions specified by HMRC. Instead, the only requirement would be to file an annual report to HMRC no later than 31 May following the end of the relevant tax year detailing all individuals requiring coverage under this arrangement.
HMRC are continually reviewing and updating the conditions to be met in order for an individual to be included within a STBV arrangement and recent changes in this regard mean that HMRC are taking a much stricter approach to the operation of PAYE where a STBV arrangement is not held.
Therefore, specific guidance should always be sought in relation to the suitability of a STBV application as a mechanism to remove the requirement to operate PAYE in respect of individuals from overseas.
However, generally a STBV arrangement must only be applied where individuals are –
- Resident in a country with which the UK has a Double Tax Agreement under which the dependent personal services/income from employment article within the treaty is likely to be competent; AND
- Coming to work in the UK for a UK company or the UK branch of an overseas company or are legally employed by a UK resident employer, but economically employed by a separate non-resident entity; AND
- Expected to stay in the UK for 183 days or less in any 12-month period.
There are specific rules in place in respect of individuals who spend less than a total of 60 days in the UK during a UK tax year (“the 60 day rule”). The 60-day rule may allow individuals to be included in a STBV arrangement even if not all of the conditions of the dependent services article of the relevant double tax treaty are met. Again, professional advice should be sought as to whether any employee can be covered by the 60-day rule.
STBV Reporting Requirements
If a STBV arrangement is applied for and subsequently approved by HMRC, the level of detail required in the annual report depends on each individual’s days of presence in the UK during the tax year in question. Essentially, the greater number of days the individual spends in the UK the greater the reporting requirements (so more reporting is required in respect of an individual falling within the “90 to 150 UK days of presence” category than the reporting required for an individual sitting within the “31 to 59 days of presence and covered by the 60 day rule” category).
However in all cases the STBV arrangement is considerably less painful in administration terms than having to calculate and remit PAYE only to then go and try and claim this back from HMRC. Details of the specific reporting requirements depending on the level of days of presence in the UK are available from HMRC or activpayroll, of course!
PAYE Special Arrangement for STBV
In an effort to continue to simplify the regulations, HMRC has recently provided a further relaxation of the strict PAYE obligations for UK resident employers in respect of Short Term Business Visitors.
The new regulations, effective 6 April 2015 provide a relaxation of the strict PAYE requirements in relation to individuals from overseas who are unable to claim ultimate exemption from UK income tax by virtue of a Double Tax Treaty and who are therefore unable to be included in a STBV arrangement.
The most common example would be individuals resident in a country with which the UK does not have a Double Tax Treaty however, other examples will exist.
Prior to the introduction of the Annual PAYE Scheme, UK resident employers were required to apply and operate PAYE in accordance with the strict deadlines set out in HMRC’s Real Time Information (RTI) legislation.
The Annual PAYE Scheme allows UK resident employers to calculate the UK PAYE liability arising for any individual, whose workdays in the UK total 30 days or less during a UK tax year, at the end of the UK tax year rather than on a much more regular basis as required by RTI.
For the avoidance of doubt, this arrangement only applies to individuals whose workdays in the UK total less than 30 days in each UK tax year and this limit will not be relaxed in any circumstances.
If approved, HMRC will set up an annual PAYE scheme to account for the UK income tax liabilities arising on any individual included within the arrangement. The UK resident employer will be required to undertake RTI reporting in respect of any such individuals prior to 19 April following the end of the UK tax year concerned and settle the PAYE liability by the same date.
So in conclusion, HMRC are watching closely how UK employers deal with the income tax liabilities and PAYE obligations in relation to employees from overseas spending time working in the UK. However, the STBV arrangement and to a lesser extent the recently introduced Annual PAYE Scheme are two HMRC driven significant risk and exposure minimisation tools that any UK employer would be remiss to ignore!