October 23, 2020
UK is always considered to be one of the major driving forces of International business. This is the reason that many overseas companies occasionally or permanently have employees working from the UK. Although compared to many other countries UK has a straightforward tax compliance for employer and employees, still sometimes they may become complicated.
If you are an overseas employer who is planning to send staff to work in the UK or if you already have staff working in the UK. Then this article is for you, we have tried to cover what you should know about UK tax compliance as an employer and even we have highlighted certain things from an employee’s perspective as well.
What is PAYE?
PAYE stands for Pay As You Earn, this is the system through which HMRC collects income tax and National insurance Contribution on the salary or wages paid to employees. An employer has to operate PAYE and submit taxes to HMRC.
Employer’s Tax Presence in the UK
The UK presence of the employer and Employer’s Tax Presence are two different things. For PAYE compliance, it is sufficient that a tax presence exists.
HMRC regards a branch or agency in the UK, or a UK representative office, as establishing a tax presence. Only having employees in the UK does not establish a Tax Presence of an employer. There must be something in the UK like a branch or agency, office or establishment. Basically, HMRC needs a UK address where they can contact the employer, send PAYE literature and, if necessary, enforce compliance.
Tax Obligations for Employees
For an employee of an overseas company, it is important that he/she knows when the tax compliance obligations arise. It is not mandatory that you must be a UK resident.
For employees, their physical presence in the UK is important, even if it is for a short period of time. If you are working for overseas company from the UK then your earnings will be taxable in the UK. Even one day’s work may result in PAYE obligation.
An employee may get exemption from UK tax if –
a. The workdays are incidental to the performance of the foreign duties.
b. Working days exemption is applicable under a double taxation agreement.
What if the employer has no tax presence in the UK?
In such situation, the employee is responsible for the deduction of income tax and employee’s share of National Insurance. The employees need to use PAYE Direct Payments process and pay taxes through Real Time reporting regime.
Or the employee can choose a simple way of reporting income and paying taxes, which is the Self-assessment tax return.
Liability towards UK National Insurance
If an employer sends employees to work in the UK for a limited period of time than employees may not be required to pay NIC due to EU legislation or a reciprocal agreement between the two countries. Many employees may get the NIC exemption under the “52 weeks rule”, which covers the first 52 weeks of their stay in the UK, which will cover the majority of short assignments.
Once it is established that the employee is required to pay UK NIC then the employer has to operate PAYE and deduct NIC or the employee can pay NIC directly. Here, one thing worth mentioning is that a non-resident employer can choose to run a NIC only PAYE instead of withholding both income tax and NIC.
Will you get relief under Double Taxation Agreement?
Treaty Relief is there for employees if the UK and the other country have agreed on which one has the primary taxation authority. So, if certain conditions are met, then the employee will not have to pay tax in the UK while working in the UK. Here, we need to thoroughly study the double taxation treaties between the two countries.
How can Doshi help you with this?
We are a London based accounting firm and have been serving UK businesses and accountants for more than two decades. We provide end to end Payroll and Tax services to our direct clients and to many accountants in the UK. We have experienced staff who have been handling PAYE tax compliances for years. They are conversant with all the latest tax laws and tools and technologies. We can help you with setting up your Payroll to managing all your tax compliances with HMRC. If you are looking for a reliable Payroll and Tax advisor then your search ends with Doshi. We will be delighted to work for you.