NIC settlements for inbound employees with UK employer

By Tolley in association with Paul Tew

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

  • NIC settlements for inbound employees with UK employer
  • Scope of agreement
  • Operating the agreement
  • NIC settlement return

HMRC offers two arrangements that relax the strict PAYE procedures in respect of Social Security / National Insurance contributions (NIC). One of these is the modified NIC arrangement covering inbound employees who areordinarily resident and domiciled outside the UK, but who have been sent to work with a UK employer or host employer, known as an ‘EP Appendix 7A ― Modified Class 1 and Class 1A National Insurance contributions for expatriate employees subject to an EP Appendix 6 agreement’ (EP APP 7A). The EP APP 7A application form for employers to complete who operate a tax equalisation agreement for employees coming to work in the UK from abroad is available at PAYE82003.

Scope of agreement

As the name suggests, this arrangement can only apply to employees who areincluded in an EP Appendix 6 Modified PAYE agreement. This means that in order for an EP Appendix 7A agreement to apply the employee must be a foreign national assigned to the UK who is tax equalised (see the Tax equalisation guidance note) and has an employer or host employer in the UK liable for secondary UK NICs liabilities. Unlike with tax, the employer can, but is under no legal obligation to, pay the employee’s primary Class 1 NIC liability as part of the equalisation process. If the employer’s bears the cost of the employee’s NICs this should be calculated on a grossed-up basis.

Many such employees remain in their home country social security systems and areexempted from UK NIC under reciprocal treaty agreements, see the Social security agreements guidance note. An EP Appendix 7A arrangement, is therefore of benefit to assignees from non-reciprocal agreement countries and / or those individuals whose circumstances aresuch that under the relevant agreement a liability to pay NIC arises in the UK, rather than their ‘home’ country social security system. Examples would include expatriate employees

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