New PAYE arrangements for short term business visitors

The government has published details of new, optional PAYE arrangements for employers with short term business visitors who work for less than 60 days in a year in the UK. The arrangements allow the employer to account for PAYE in respect of such employees at the end of the relevant 12 month period and relieve the employee of the need to complete a UK tax return.  

The new arrangements, which come into effect from 6 April 2020, replace and extend earlier arrangements and are set out in the HMRC Manuals at PAYE81950. They operate in addition to other PAYE easements where short term business visitors are, for example, seconded from related companies abroad. In particular, the new arrangements may be used where the employee is seconded to a UK branch of an overseas company or from an overseas branch of a UK company.

Background

In 2018, the government published a consultation document, "Tax and Administrative Treatment of Short Term Business Visitors from Overseas Branches", on extending Pay As You Earn (PAYE) administrative simplification to scenarios where business visitors come to work in the UK from an overseas branch for short periods.  

Under current rules, where a short term business visitor (STBV) comes to the UK to work for a UK company, that company must in principle operate PAYE on the individual's earnings in the normal way. In addition, the STBV may need, in principle, to complete a UK tax return and may need to claim double tax relief in their home jurisdiction where they are resident to avoid double taxation on their UK earnings.

However, HMRC permit UK companies with STBVs from overseas subsidiaries to enter into short term business visitor arrangements (STBVAs). These arrangements (known as an Appendix 4 agreement and described at PAYE82000) relax the normal rules where they apply and ease administration. They also relieve the STBV of the need to pay UK tax on their earnings or file a tax return. HMRC will grant an STBVA where an STBV is:

• resident in a country with which the UK has a Double Tax Treaty (DTT) covering dependent personal services;
• comes to work for a UK company or branch or is legally employed by a UK employer but economically employed by a separate non-UK entity; and
• expected to stay in the UK for 183 days or less in any twelve month period.

These rules do not apply however where the STBV comes to work in the UK from an overseas branch of a UK company. This is because the provisions of a DTT (based on Article 15(2) of the OECD Model) only provide for exclusive taxation in the individual's home country where the remuneration is paid by an employer who is not resident in the UK. Since an overseas branch is not a separate legal entity but is part of the UK company, the STBV is paid by an employer who is resident in the UK even where it is economically borne by the overseas branch.

Until April 2020, a separate arrangement was in place for STBVs not eligible for an Appendix 4 agreement but who have 30 work days or less in the UK in a tax year. This arrangement allowed the UK company to operate an annual PAYE scheme and did not require the STBV to submit a UK tax return. This previous scheme is described at PAYE81949.

New scheme

The new scheme is similar in many respects to the old scheme which it replaces, but now applies to STBVs with no more than 60 workdays in the UK in a year.

It is available to UK based employers who operate internationally and require non-resident employees to come into the UK to work for them for short periods of time. The arrangement will allow the employer to provide a return to HMRC at the end of the tax year (rather than in real time). This means that employees with no overall liability do not need to have tax deducted and apply for repayments through self-assessment. Employers wishing to take advantage of these arrangements must enter into a form of agreement with HMRC known as an Appendix 8 agreement.

The Appendix 8 arrangement will cover relevant payments of PAYE income and/or taxable benefits in kind provided to the STBV for the tax year that the arrangement is signed and any subsequent tax years until it is either terminated or reviewed.

The UK employer will total all relevant payments made by both the UK employer and home country employer to the STBV for UK workdays in the year and pay the tax due to HMRC taking into account personal allowances where appropriate. If the employee is covered by employer tax equalisation arrangements, the tax must be grossed up within the calculation.

If the UK employer provides a benefit in kind to a STBV, they are not required to prepare a Form P11D in respect of that benefit. However, they must include the cash equivalent of the benefit and any other benefit provided by the home country employer within the calculations they are making for the PAYE income paid to these employees. If the employer bears the tax on the provision of the benefit in kind, the amount of the tax must also be grossed up within the calculation.

The arrangement only applies to a STBV whose UK workdays in the tax year total 60 days or less. The 60 UK workdays do not include:

• those days where only incidental duties are performed in a tax year; and
• any day where the conditions for a PAYE Special Arrangements under an Appendix 4 agreement are met in respect of a whole day.

In addition, non-resident directors of the UK company may not be included in the Appendix 8 agreement.

Where an Appendix 8 arrangement applies to an employee, HMRC does not expect that employee to submit a self-assessment return in the UK unless they have another UK tax liability. However, if they do need to complete a UK tax return for other reasons, then the STBV would also need to include all Appendix 8 earnings within the return.

National Insurance contributions

An Appendix 8 arrangement is agreed under the authority of the PAYE Regulations and there is no equivalent legislation for National Insurance. Any STBV who has a Class 1 NICs liability cannot be included and any Class 1 NICs must be paid within the relevant earnings period.