Pre-departure planning from an employer’s perspective

Introduction

Practical issues for payroll operation when employees are leaving the UK are covered in the Outbound employees ― payroll issues and other legislative points in the Reporting requirements on leaving the UK guidance notes.

This section considers opportunities for UK employers to improve the tax consequences for themselves or their employees when the latter are about to depart for overseas employment.

Ensure that all agreements made between employer and employee are set out in writing in an employment contract. That should include stating the obvious, such as whether the employee is actually employed by the UK entity or the overseas entity or both.

Planning opportunities occur particularly where the same employer, or at least another group company, will continue to be the employer of the overseas individual. Nevertheless, some steps will be applicable even if the employee leaves to work for an unrelated overseas employer.

Planning points relevant to income tax

Are any bonuses due? It does not provide any reduction in tax just to delay paying an employee’s bonus or holiday pay until after he has become non-resident. He will be taxed on the basis of where he was resident at the point of his earnings, not where he was resident when he received payment (see the Taxation of cash earnings guidance note). It may be possible to delay a decision on bonuses until after the employee has moved, but care needs to be taken over directors as the trigger point for tax may still be a point before the director’s departure (see the Directors guidance note for the special rules applicable to them). The tax jurisdiction of the new employment country should also be considered. It might be beneficial for bonuses to attach to a greater extent to the employment carried out in whichever is the lower tax rate country. However, this must be borne out by reality and if discretion is to be applied, a written agreement should be put in place beforehand.

Where will the individual’s