Inbound employees ― payroll issues

Produced by Tolley in association with Paul Tew
Inbound employees ― payroll issues

The following Employment Tax guidance note Produced by Tolley in association with Paul Tew provides comprehensive and up to date tax information covering:

  • Inbound employees ― payroll issues
  • Eligible for work?
  • General principles
  • Direct pay arrangements
  • Modified payroll schemes: expatriate employees
  • Arrivals in the UK: tax coding
  • Restricted operation of PAYE
  • Overseas intermediaries
  • Exceptions
  • National insurance
  • More...

Eligible for work?

The employer must ensure that an employee coming from overseas is eligible to work in the UK. Failure to complete the right checks can trigger a civil penalty (fine) of up to £20,000 for each illegal worker. There is an online tool on GOV.UK for these checks. See the Checking the employee’s right to work guidance note.

During these checks, the employer should review the employee’s passport and the passport number should be included in the first Full Payment Submission (FPS) that the employer makes, where this is known. This should be sent once to HMRC, if held.

General principles

The general rule is that PAYE (tax and NIC) is operated in the normal way for employees coming to work in the UK. Even if an employee remains employed by their overseas employer and is paid abroad whilst on secondment to a UK company, the UK company is treated as the employer and is therefore responsible for recording and reporting earnings under RTI as well as operating PAYE (see the Real time information guidance note and other notes in the Mechanics of Payroll topic).

More information can be found on the GOV.UK website.

Direct pay arrangements

In some cases, HMRC will agree to a PAYE direct payment arrangement, eg if there is only an overseas employer with no presence in the UK. This means that the employer is not required to set up and operate a payroll in the UK, but instead the employee is responsible for operating PAYE and paying the tax and NIC to HMRC under a single PAYE reference, as appropriate; although the regulations make provisions for the employee to object and pay tax under self assessment instead. The employee should also be set up as a self assessment case if the employee has failed to operate PAYE correctly.

Modified payroll schemes: expatriate employees

Where foreign nationals are sent to work in the UK by their overseas employer and are under a tax equalisation

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