Short term business visitors (STBVs) are employees working in the UK for a limited period. There's often a misconception that no tax liability or reporting requirement exist in relation to STBVs working in the UK, and that the double tax treaty relief applies automatically. This actually depends on whether the overseas employer has a UK PAYE presence (office, branch, permanent establishment) or the STBV is working for the benefit of a UK-based company. In the absence of a formal agreement with HMRC, a PAYE obligation may strictly arise from their first day of working in the UK.
UK companies and branches often have an obligation to operate PAYE to collect any income tax due on STBVs’ earnings. However, it's possible for UK businesses to apply for an STBV arrangement with HMRC for the relaxation of PAYE requirements where treaty relief will ultimately apply (but not national insurance contributions (NIC) in respect of their STBV population.
There are two key payroll related easements: EP appendix 4 (STBV agreement) and EP appendix 8 (PAYE special arrangement for short term business visitors), to assist employers in addressing PAYE obligation in respect of STBVs. If an EP Appendix 4 is in place, PAYE will not need to be deducted. Instead, an annual report must be filed detailing individuals included within the agreement and certain information about the individuals depending on how much time has been spent in the UK.
HMRC has been issuing ‘one to many’ letters to employers that to remind them of PAYE obligations and reporting requirements. These letters focus on STBV compliance, highlighting areas where HMRC are seeing common errors or non-compliance.
HMRC is drawing attention to the following points relating to the conditions which must be satisfied in order to apply for an STBV arrangement (EP Appendix 4).
A business cannot apply for an STBV arrangement in respect of an individual who is normally resident in a country with which the UK doesn't have a double taxation agreement. STBVs that come to work in the UK from an overseas branch of the same company should not be included in an STBV arrangement. This is based on HMRC’s view that the overseas branch is an extension of the UK company rather than a separate legal entity, making it the ultimate employer.
If the cost of remuneration for an STBV is ultimately borne by the UK company and not recharged to the overseas employer, the STBV cannot be included in the arrangement, unless they have been in the UK for fewer than 60 days. HMRC also highlight the correct application of the 60-day rule and how this should be applied. It's important when considering this 60-day period to note that it is not limited to a single tax year i.e. it can apply across tax years.
An STBV can only be included in an STBV arrangement if they are expected to be in the UK for 183 days or less over the relevant 12-month period. The ‘days of physical presence’ method should be used when day counting ie, generally any day during which the employee is present in the UK at any time is included in the day count.
The double taxation agreement should be checked as it may provide that the 12-month period should apply by reference to a tax year rather than a rolling 12-month period.
You should consider the points raised in HMRC’s letter for your STBV population and check that PAYE has been operated correctly for any taxable STBVs and correct inclusion of individuals within EP Appendix 4 reports.
If EP Appendix 4 does not apply, the default would be inclusion on the UK payroll. EP Appendix 8 may allow annualised reporting for such individuals who spend less than 60 days in the UK and who cannot be included within EP Appendix 4 (provided a class 1 NIC liability does not arise). Also depending on the company’s tax policy when identifying individuals who do not meet the requirements of EP Appendix 4, it may be possible to include such individuals within modified PAYE procedures (EP Appendix 6).
If any errors are identified, you should consider how best to approach HMRC in order to resolve these (eg responding to HMRC’s letter or making a disclosure), and you may wish to speak with your professional tax advisers regarding this. If you find that there are no errors in compliance, you may wish to notify HMRC.
Our employer solutions team can help review your compliance in relation to your current STBV population, correct application of the various HMRC agreements and annual filing requirements.
While this alert relates to UK PAYE compliance in respect of STBVs, this is increasingly an area of focus across the globe wider than just for tax and social security considerations. We can help you prepare for global business travel to resume by reviewing your current processes for identifying and managing your STBV population, including automating this through digital solutions and develop policies which are suitable for your business.
For any support on STBV compliance, contact Katy Bond.
Written by Matthew Wilson.