Ukraine crisis: PAYE and NIC for returning employees

UK employers with employees returning to the UK from Belarus, Russia and Ukraine may have unexpected PAYE and NIC obligations.  

Following an HMRC update, I have set out below the key considerations for UK employers and employees. However, employers should note that the position can be complex and nuanced and can depend on the individual circumstances in such cases.  

UK residence 

• Under the UK Statutory Residence Test (SRT), an individual’s UK residence position is determined (at least in part) by the number of days that they spend in the UK. A day is counted for UK residence purposes where the individual is present in the UK at midnight at the end of that day.   

• For employees who have had to return to the UK because of FCDO advice in response to the war, HMRC has confirmed that the exceptional circumstances concession will apply to any days that the employee spends in the UK.  

• Any days spent in the UK due to exceptional circumstances will not be counted for the purpose of the SRT. However, UK legislation only allows for a maximum of 60 days in each tax year to be disregarded due to exceptional circumstances.  

Tax and PAYE 

• Where individuals have been seconded to Belarus, Russia or Ukraine by a UK employer, it is possible that they became non-resident or expected to become non-resident in the UK. In these circumstances, HMRC would normally issue a No Tax (“NT”) code to the UK employer such that no PAYE is deducted.  

• UK employers with employees in this position should review the PAYE position as UK PAYE may need to re-commence where the employee is performing non-incidental duties in the UK.

• Non-incidental duties include all duties except those which are incidental to the employment overseas. The definition of incidental in these circumstances is very tightly drawn by HMRC and it only includes duties such as training or attending briefings.  

• Most importantly, where the employer is located in the UK, PAYE will be required on non-incidental UK duties, irrespective of the employee’s UK residence position. That is, despite the concession above, returning employees may be subject to UK tax on their UK duties via PAYE.  

• From an employment tax perspective, the main benefit of the concession above where there is a UK employer is that, depending on the facts and circumstances, it means UK tax may not be required on non-UK benefits provided to non-residents (e.g. such as accommodation in Belarus, Russia or Ukraine).  

• Where employees resume UK residence when they return to the UK, PAYE and UK tax will be required on worldwide employment benefits, as well as income from their employment.   

National Insurance Contributions 

• Where an employee is seconded to Belarus, Russia or Ukraine by their UK employer then subject to certain conditions, Class 1 employer and employee NIC is normally due for the first 52 weeks of the secondment. Once 52 weeks have passed, NIC is no longer required.  

• If employees return to the UK from Belarus, Russia or Ukraine after the 52 weeks period has expired, their UK employer will need to consider whether NIC should resume.  

• Strictly, NIC should resume from the first day that the employee performs non-incidental duties in the UK. However, by a longstanding concession, HMRC will normally agree to ignore the first 6 weeks of any period in the UK before requiring the recommencement of NIC.  

• Where employees are still within the 52-week period, it will not be extended by any period of employment in the UK which falls within it. 

• However, employers should note that once an existing 52-week liability period has ended, Class 1 NICs will be required for the first 52 weeks starting from the contribution week in which the period of overseas work resumes. That is, the 52-week clock is, in effect, re-started for employees.   

What does this mean for employers? 

Employers should review the position for any employees in this position. As the crisis continues and employees spend more time in the UK, the risk of triggering unexpected UK PAYE and NIC liabilities increases.  

Also, the rules are nuanced and not always straightforward. For example, the position can change markedly when an employee returns to the UK but remains employed by a non-UK company in Belarus, Russia or Ukraine.  

Finally, whilst we have focused on the employment tax implications, employees may also need to seek advice regarding the impact of their return to the UK on their personal tax position. For example, becoming a UK resident may mean that they become subject to UK tax on their non-UK personal income.  

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

UK employers with employees returning to the UK from Belarus, Russia and Ukraine may have unexpected PAYE and NIC obligations.  

Following an HMRC update, I have set out below the key considerations for UK employers and employees. However, employers should note that the position can be complex and nuanced and can depend on the individual circumstances in such cases.  

UK residence 

• Under the UK Statutory Residence Test (SRT), an individual’s UK residence position is determined (at least in part) by the number of days that they spend in the UK. A day is counted for UK residence purposes where the individual is present in the UK at midnight at the end of that day.   

• For employees who have had to return to the UK because of FCDO advice in response to the war, HMRC has confirmed that the exceptional circumstances concession will apply to any days that the employee spends in the UK.  

• Any days spent in the UK due to exceptional circumstances will not be counted for the purpose of the SRT. However, UK legislation only allows for a maximum of 60 days in each tax year to be disregarded due to exceptional circumstances.  

Tax and PAYE 

• Where individuals have been seconded to Belarus, Russia or Ukraine by a UK employer, it is possible that they became non-resident or expected to become non-resident in the UK. In these circumstances, HMRC would normally issue a No Tax (“NT”) code to the UK employer such that no PAYE is deducted.  

• UK employers with employees in this position should review the PAYE position as UK PAYE may need to re-commence where the employee is performing non-incidental duties in the UK.

• Non-incidental duties include all duties except those which are incidental to the employment overseas. The definition of incidental in these circumstances is very tightly drawn by HMRC and it only includes duties such as training or attending briefings.  

• Most importantly, where the employer is located in the UK, PAYE will be required on non-incidental UK duties, irrespective of the employee’s UK residence position. That is, despite the concession above, returning employees may be subject to UK tax on their UK duties via PAYE.  

• From an employment tax perspective, the main benefit of the concession above where there is a UK employer is that, depending on the facts and circumstances, it means UK tax may not be required on non-UK benefits provided to non-residents (e.g. such as accommodation in Belarus, Russia or Ukraine).  

• Where employees resume UK residence when they return to the UK, PAYE and UK tax will be required on worldwide employment benefits, as well as income from their employment.   

National Insurance Contributions 

• Where an employee is seconded to Belarus, Russia or Ukraine by their UK employer then subject to certain conditions, Class 1 employer and employee NIC is normally due for the first 52 weeks of the secondment. Once 52 weeks have passed, NIC is no longer required.  

• If employees return to the UK from Belarus, Russia or Ukraine after the 52 weeks period has expired, their UK employer will need to consider whether NIC should resume.  

• Strictly, NIC should resume from the first day that the employee performs non-incidental duties in the UK. However, by a longstanding concession, HMRC will normally agree to ignore the first 6 weeks of any period in the UK before requiring the recommencement of NIC.  

• Where employees are still within the 52-week period, it will not be extended by any period of employment in the UK which falls within it. 

• However, employers should note that once an existing 52-week liability period has ended, Class 1 NICs will be required for the first 52 weeks starting from the contribution week in which the period of overseas work resumes. That is, the 52-week clock is, in effect, re-started for employees.   

What does this mean for employers? 

Employers should review the position for any employees in this position. As the crisis continues and employees spend more time in the UK, the risk of triggering unexpected UK PAYE and NIC liabilities increases.  

Also, the rules are nuanced and not always straightforward. For example, the position can change markedly when an employee returns to the UK but remains employed by a non-UK company in Belarus, Russia or Ukraine.  

Finally, whilst we have focused on the employment tax implications, employees may also need to seek advice regarding the impact of their return to the UK on their personal tax position. For example, becoming a UK resident may mean that they become subject to UK tax on their non-UK personal income.  

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