Non-resident employers and liability to PAYE in the UK

By Tolley in association with Gill Salmons
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The following Employment Tax guidance note by Tolley in association with Gill Salmons provides comprehensive and up to date tax information covering:

  • Non-resident employers and liability to PAYE in the UK
  • Introduction
  • Liability to withhold UK income tax
  • Prevention of double taxation at source
  • Liability to UK National Insurance
  • RTI reporting
  • Planning point
  • Points to watch

Introduction

In some situations, an employee of a non-UK employer may be subject to UK Pay As You Earn (PAYE) tax and / or National Insurance contributions (NIC) withholding while they spend time working in the UK. Simply having a non-UK contractual employer does not automatically mean that PAYE does not need to be operated.

Liability to withhold UK income tax

UK-based businesses are legally bound to pay their UK employees via PAYE if any of their employees earn more than a specified amount, for 2016/17 being £112 per week (the Lower Earnings Limit (LEL) for Class 1 NIC purposes), or if the employee receives benefits in kind or has another job or receives a pension (see the Setting up a payroll guidance note). As part of PAYE being operated correctly, the employer or his payroll agent must withhold income tax and NIC from each employee’s salary or wages in accordance with the operation of a ‘tax code’ assigned to the individual by the employer by following HMRC’s instructions, and pay these amounts to HMRC by the 22nd of the following month. Where the employer is not UK-based, there are rules in place which ensure that, in some circumstances, the employer must still operate PAYE if they have employees working in the UK.

Where an employee is seconded to work in the UK at a group company, the ‘economic employer’ rules may well apply. These state that, because the individual is working for the benefit of the UK business rather than for the benefit of the contractual employer, the liability to operate PAYE falls on the UK entity rather than the contractual employer. There is an exception to this rule: if the UK business has a short-term business visitors agreement (see the Short term business visitors (STBVs) guidance note) in place and its conditions are adhered to, UK

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