Paying non-UK residents outside of RTI

Paying non-UK residents outside of RTI
12 Apr 2022

Every year, UK employers employ thousands of people who live and work indefinitely outside the UK. Such UK employers will often then pay these employees from the UK.  

In this article, we look at the rules and considerations associated with making salary payments in these circumstances.  

Why pay from the UK? 

Normally, UK employers engage and pay non-resident employees from the UK because they have no corporate presence in the country in which the employee is living and working.  

So, for example, a UK employer may decide to hire a South African employee to work from home in South Africa. Where the UK employer has no presence in South Africa, they may decide to simply employ and pay the individual from the UK.  

What PAYE and NIC withholding is required? 

Provided that the conditions below are met, the UK employer does not need to withhold any PAYE or NIC. In fact, HMRC allows UK employers to pay such employees without the need to submit an FPS. That is, the UK employer can simply make gross salary payments directly to the employee. 

The conditions for gross payments in these circumstances are set out in HMRC CWG2. They state that the employee: 

  • is non-resident in the UK; 
  • has never been resident in the UK; 
  • does not intend to work in the UK; and  
  • will work wholly outside the UK.  

Where these conditions are met, the employer can in effect self-assess a UK No Tax (“NT”) code without having to request this from HMRC or notify HMRC. No PAYE or NIC is required and the employer will not need to submit an FPS. Simply, a gross payment can be made via the UK payroll.   

Note that, if the employee’s circumstances change (i.e. they start to perform duties in the UK) then PAYE/NIC may be required.  

Normally, HMRC will accept ‘incidental’ duties to the UK as being included within the definition of ‘work’ for the conditions above. HMRC generally considers incidental duties to be those that are ‘subordinate and ancillary’ to those that are carried out overseas. That is, they must be of secondary importance to the main duties of the employment carried out overseas. Therefore, coming to the UK to attend training and/or general catch-up meetings to receive new instructions should normally be considered incidental.   

Does this apply to UK residents who have gone overseas to work? 

No. Where employees were previously resident in the UK then they will not satisfy the conditions above. For these people, the UK residence and NIC position will need to be confirmed before the UK payroll process can be determined. In such cases, the employee would need to request an NT code from HMRC. This exemption is really only intended for those instances where UK employers recruit non-UK resident employees to work wholly overseas.  

Common pitfalls 

Like all payroll matters involving international staff, care is required to ensure compliance. Common pitfalls include: 

  • omitting to tell the employee that they will be responsible for settling any personal income tax overseas on the UK paid gross salary. Normally, income tax will be due in the country where the employee is resident and working; and 
  • operating PAYE and NIC when it is not required. Over the years, I have come across a number of instances where employers and employees erroneously think that PAYE and NIC are required due to the fact that the individual is employed by a UK employer. In one example, UK PAYE and NIC were operated for over 10 years and no tax or social security was paid overseas by the employee. In this case, it was impossible to recover all of the overpaid PAYE and NIC due to the UK statute of limitations being 4 and 6 tax years for PAYE and NIC respectively.  

Whilst there are some complexities (including potential employment law implications), this little know exemption for PAYE and NIC can be very handy when it comes to employing international staff. 


Author: Lee McIntyre-Hamilton

Lee has over 23 years of experience in international mobility, expatriate tax and employment tax. He works with a diverse range of international organisations, from small owner-managed businesses to large multi-national corporations and non-profit organisations.  Lee delivers coordinated, joined-up global mobility tax, international social security and payroll advice across many territories globally. He is a published writer on international tax matters, notably the Tiley & Collinson UK Tax Guide.


Contact Lee:  lee@globalpayrollassociation.com

 

Every year, UK employers employ thousands of people who live and work indefinitely outside the UK. Such UK employers will often then pay these employees from the UK.  

In this article, we look at the rules and considerations associated with making salary payments in these circumstances.  

Why pay from the UK? 

Normally, UK employers engage and pay non-resident employees from the UK because they have no corporate presence in the country in which the employee is living and working.  

So, for example, a UK employer may decide to hire a South African employee to work from home in South Africa. Where the UK employer has no presence in South Africa, they may decide to simply employ and pay the individual from the UK.  

What PAYE and NIC withholding is required? 

Provided that the conditions below are met, the UK employer does not need to withhold any PAYE or NIC. In fact, HMRC allows UK employers to pay such employees without the need to submit an FPS. That is, the UK employer can simply make gross salary payments directly to the employee. 

The conditions for gross payments in these circumstances are set out in HMRC CWG2. They state that the employee: 

  • is non-resident in the UK; 
  • has never been resident in the UK; 
  • does not intend to work in the UK; and  
  • will work wholly outside the UK.  

Where these conditions are met, the employer can in effect self-assess a UK No Tax (“NT”) code without having to request this from HMRC or notify HMRC. No PAYE or NIC is required and the employer will not need to submit an FPS. Simply, a gross payment can be made via the UK payroll.   

Note that, if the employee’s circumstances change (i.e. they start to perform duties in the UK) then PAYE/NIC may be required.  

Normally, HMRC will accept ‘incidental’ duties to the UK as being included within the definition of ‘work’ for the conditions above. HMRC generally considers incidental duties to be those that are ‘subordinate and ancillary’ to those that are carried out overseas. That is, they must be of secondary importance to the main duties of the employment carried out overseas. Therefore, coming to the UK to attend training and/or general catch-up meetings to receive new instructions should normally be considered incidental.   

Does this apply to UK residents who have gone overseas to work? 

No. Where employees were previously resident in the UK then they will not satisfy the conditions above. For these people, the UK residence and NIC position will need to be confirmed before the UK payroll process can be determined. In such cases, the employee would need to request an NT code from HMRC. This exemption is really only intended for those instances where UK employers recruit non-UK resident employees to work wholly overseas.  

Common pitfalls 

Like all payroll matters involving international staff, care is required to ensure compliance. Common pitfalls include: 

  • omitting to tell the employee that they will be responsible for settling any personal income tax overseas on the UK paid gross salary. Normally, income tax will be due in the country where the employee is resident and working; and 
  • operating PAYE and NIC when it is not required. Over the years, I have come across a number of instances where employers and employees erroneously think that PAYE and NIC are required due to the fact that the individual is employed by a UK employer. In one example, UK PAYE and NIC were operated for over 10 years and no tax or social security was paid overseas by the employee. In this case, it was impossible to recover all of the overpaid PAYE and NIC due to the UK statute of limitations being 4 and 6 tax years for PAYE and NIC respectively.  

Whilst there are some complexities (including potential employment law implications), this little know exemption for PAYE and NIC can be very handy when it comes to employing international staff. 


Author: Lee McIntyre-Hamilton

Lee has over 23 years of experience in international mobility, expatriate tax and employment tax. He works with a diverse range of international organisations, from small owner-managed businesses to large multi-national corporations and non-profit organisations.  Lee delivers coordinated, joined-up global mobility tax, international social security and payroll advice across many territories globally. He is a published writer on international tax matters, notably the Tiley & Collinson UK Tax Guide.


Contact Lee:  lee@globalpayrollassociation.com

 

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