Following the tightening of travel restrictions due to COVID-19, many employers have been faced with having employees who would normally work wholly overseas, ending up based in the UK and carrying out their role either from a residential address, hotel or a Company base in the UK.
In some cases, these individuals are employed by the UK Company and processed through the UK payroll, but with an NT (no tax) tax code and National Insurance letter X applied. This means they are not liable to any deductions for UK income tax or National Insurance at source as a result of their overseas based role, wider tax residence status and National Insurance exemptions that are available depending on the location of duties.
As a result of these unprecedented circumstances, employers must take extra care surrounding the tax and National Insurance treatment of these individuals to ensure the correct PAYE deductions are made via their payroll mechanism. This will require employers to ensure the NT tax code and National Insurance letter X are still applicable based on the duties currently being carried out in the UK, as the responsibility to apply the correct PAYE treatments lies firmly with the employer. Ultimately, any earnings relating to an employee who is now undertaking UK duties would primarily carry a liability to UK tax and National Insurance.
HMRC have broadly been silent on the position and whether any concessions will be available to remove the charge to UK tax and National Insurance should employees have been unable to leave the UK as a result of COVID-19, which resulted in them working in the UK to continue their employment. As such, at this stage employers should follow the standard rules in order to determine if the duties are such to give rise to a PAYE obligation and a liability to UK tax and National Insurance.
Typically, an overseas based individual will only be considered as having a liability to UK tax on UK duties which are not merely incidental to their overseas role and are considered substantive. This is very much open to interpretation and as such employers should ensure that a review is carried out of the individual’s position with back up retained of their split in duties between overseas and UK. This back up could be called upon by HMRC in the case of any query over the treatment applied by the Company for tax and National Insurance purposes.
Looking at the National Insurance position, this is dealt with separately from the UK tax position. In this case, providing the individual is only spending a short amount of time in the UK, it may be possible to maintain their NI letter X status. Should however it become apparent at any point that their stay in the UK will be prolonged, this position should be revisited to confirm if it would be appropriate to deduct National Insurance from their earnings. It is important to note here that if the individual has returned to the UK from a country that does not have a reciprocal agreement in place with the UK, should they become liable for UK National Insurance they will be subject to another 52 week period from the point they leave the UK again where UK National Insurance will continue to be due.
It is worth noting that the Employer’s PAYE obligation is separate from an individual’s tax residency status, and although an individual may continue to be non UK resident, any UK duties carried out could still attract a reporting obligation and liability to tax and NI.
If you have any concerns over individuals who have returned to the UK as a result of COVID-19 and have carried out employment duties in the UK, please do not hesitate to get in touch with Megan McDonald or your usual AAB contact who would be happy to help ensuring you remain compliant as an employer.