How to calculate and deduct PAYE for employees coming to work in the UK

21 October 2020

Employers can apply to operate PAYE on employee earnings for work they carry out in the UK in scenarios where an employee is not a UK resident and works both within and outside of the UK, or where the employee is a resident in the UK, the remittance basis applies to them and they meet the three year period of non-residence.

Employers must apply to HMRC for a s690 Direction, under which HMRC will give the employer formal permission to exclude a portion of the employee’s pay from the operation of UK PAYE – see https://www.gov.uk/government/publications/paye-apply-for-a-section-690-or-informal-treaty-direction-s690.

Examples

A UK company maintains a branch overseas. A senior executive from that branch visits the UK on business for three months of the tax year without forming UK tax residency. Although deemed non UK resident, as the executive is ultimately employed by the UK company UK tax is due for days of work performed here. HMRC will issue on request a s690 Direction directing the employer to only subject 25% of the executive’s salary to UK tax.

A global group of companies sends a senior executive of non UK domicile on a three year assignment to the UK. Although the work will be performed predominantly in the UK, the executive will visit Paris, Berlin and Amsterdam every month on business amounting to 10% of the employee’s working time. This employee will be deemed to be UK tax resident, but as a non UK domiciled individual, who has NOT been a UK tax resident in the three years prior to arrival, the employee may claim Overseas Workday Relief. Provided the portion of salary for the business trips abroad is paid to a foreign bank account and is not bought to the UK (which thus qualifies it for taxation under the remittance basis) it will be exempt from UK taxation. HMRC will issue on request a s690Direction directing the employer to ignore the 10% of salary earned and remitted overseas during the tax year of arrival in the UK, and for the two subsequent tax years.

Any employer who currently holds a s690 Direction, and because of the disruption caused by the virus believes the original Direction is now inaccurate, should apply to HMRC to either withdraw or amend the s690 Direction issued for affected employees.

With thanks to Tim Kelsey, of Kelsey’s Payroll Services, who provided this article.

 


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