With the festive season over, the start of a new year gives employers an ideal opportunity for a spring clean of their compliance processes and to identify any tax planning opportunities.
Particular consideration should be given by employers that have a globally mobile workforce due to the many tax implications which can be created by these individuals, sometimes at significant cost. Nevertheless, there are mechanisms available to alleviate some of these complexities and administrative burdens on both the employer and individual, for which taking a proactive approach can not only help mitigate the chances of tax authorities issuing interest and penalty notices for failure to comply, but also reduce the likelihood of additional audits being imposed.
Net of Foreign Tax Credit Arrangements
For an employee on a UK payroll, should they have a tax obligation overseas alongside a continuing UK PAYE liability, HMRC offer an administrative concession by way of the Appendix 5 Net of Foreign Tax Credit Scheme. In short, this allows an employer to offset the foreign tax against UK PAYE due on the same income thereby giving double tax relief at source. This scheme should be operated ‘real-time’ and greatly assists with cash flow.
Short Term Business Visitors
The arrangement provides for the possible relaxation or complete exemption of PAYE for employees on short-term business visits to the UK. The criteria largely focus on the entity bearing the cost, where the individual is resident, the nature of the duties and the number of days spent in the UK, with greater relaxation and less compliance for lower day counts. It is worth noting that HMRC are introducing revised rules from 6th April 2020 to provide enhanced relaxations for employees from overseas territories with which the UK does not have a Double Taxation Agreement.
Another area of recent HMRC focus is that of non-UK resident directors of UK companies. Many organisations do not realise that such a role carries tax and National Insurance reporting requirements in relation to the performance of duties in the UK. A common misconception is that non-resident directors benefit from double tax treaty protection, however this is not necessarily the case and therefore it is important to have a consistent approach for monitoring where these directors are carrying out their duties and the expenses they incur. With senior management typically being amongst the highest paid, it is easy to see why HMRC pursue and scrutinise the processes and policies adopted by employers.
PAYE Direction for Non-Residents
If you have an employee who works both inside and outside the UK but is not UK resident, there may be eligibility to submit an application to HMRC for a direction to operate UK PAYE only on the percentage (best estimate basis) of the employee’s total earnings relating to work in the UK. This direction would apply to all payments the employer makes (including termination payments and share based remuneration), with the trade-off being that a UK tax return must be completed to reconcile and report the final position.
Unlike the UK, the majority of countries have a calendar tax year ending 31st December. When considering the energy sector, common examples of countries we typically experience are the United States, Canada, Norway, The Netherlands and Denmark.
On review of your operations, should you believe actions are required in any jurisdiction (as well as the interaction with the UK) for a prior tax year, there are a number of options available to achieve compliance retrospectively (and in some instances reclaim overpaid/undue monies) for which we strongly recommended that you engage with professional advisors to assist.
By David Purse, Payroll & Employment Taxes Director at Anderson Anderson & Brown LLP.
To find out more about David and the Payroll & Employment Taxes team, click here.