Are overseas visitors a risk to your business?

If your organisation has employees from overseas group entities who travel to the UK for work, it's important to assess their PAYE obligations, as UK taxes may be due from the date of their first visit in a tax year. 

Many organisations have globally mobile staff working in the UK on formal assignments, but even more have employees who visit the UK on business for short periods of time without the more formal structure of a secondment or assignment agreement. 

These ‘Short Term Business Visitors’ may be in the UK for a myriad of reasons, but many companies mistakenly assume the short-term nature of their visits means that these activities do not attract any UK tax.   

The truth is that where an overseas employee travels to the UK on business, the company has an obligation to operate PAYE on the employment duties undertaken in the UK from day one if they are performing ‘substantive’ duties in the UK and are considered to be ‘working for’ a host UK employer. 

We shall consider the ‘working for’ concept further below but the key issue here is that employers need to monitor all employee travel to the UK and firstly determine whether a PAYE obligation exists. 

However, where individuals are resident in a country with which the UK has a Double Tax Treaty (“a treaty country”), it may be possible to ‘relax’ these strict PAYE obligations by applying to HMRC for an ‘Appendix 4’ or ‘Short-Term Business Visitors’ (STBV) Agreement. 

This agreement allows a business to forego PAYE withholding where the conditions for exemption from UK tax are met provided they track and report any employees to HMRC who travelled to the UK during the tax year. If no agreement is in place, then the strict requirement to operate PAYE will remain. 

Under an STBV agreement, employers are obliged to track their visitors to the UK and report those that are exempt from PAYE by 31 May after the tax-year end. The information required for each employee is dependent upon the amount of time spent in the UK each year.

A PAYE obligation will exist where an overseas individual is either employed by a UK company (or an overseas branch of a UK entity) or paid by an employer with a UK tax presence. However, PAYE can also be due where there is a ‘host employer’ in the UK, which we shall explore below. 

It first needs to be considered if any of the duties performed during a workday in the UK are ‘substantive’ in nature - in other words, of at least equal importance to those usually performed overseas. If not, and the duties are subordinate or ancillary, they may be considered as ‘merely incidental’ and can be disregarded when considering whether PAYE is due.

The reality is that a full day of incidental duties is now quite rare due to the ongoing use of modern technology for checking emails etc. 

Where it is determined that the UK duties are not merely incidental, an obligation to operate PAYE for an overseas employee visiting the UK will exist if they are ‘working for’ a host UK employer. HMRC’s view is that a visitor to the UK is ‘working for’ a UK company if the UK business can exert a degree of ‘management and control’ over the activities they perform whilst in the UK.

The UK has an extensive network of Double Tax Treaties in force, most of which contain an ‘Employment Income’ or ‘Dependent Personal Services’ Article which may allow a tax resident of an overseas treaty country to be exempt from income taxes in the UK. If these conditions are met, a PAYE obligation can be relaxed under an STBV agreement. 

The conditions vary according to the relevant treaty but very broadly, exemption can be granted where an individual spends no more than 183 days in the UK in a period defined by the specific treaty (usually a tax year, calendar year or rolling 12 month period), remains paid by, or on behalf of, an employer within the home location, and their remuneration costs are not ultimately borne by the UK company.

There can often be a misconception that the exemption is available where an individual simply spends less than 183 days in the UK, but it is important for employers to understand that all the conditions need to be satisfied. 

A crucial point here is whether the employee could be deemed to be ‘economically employed’ in the UK because of the work they undertake in the UK. Even where an individual continues to be paid from the home location, if the UK business bears the risk and responsibility for the work the employee undertakes in the UK, they may be deemed to be sufficiently integrated into the UK business such that they would be considered to be economically employed in the UK. 

If so, the conditions for treaty exemption will fail – the employee is considered to be paid ‘on behalf’ of the UK business - and PAYE will be due in the UK. Depending on the circumstances, other reliefs may be applied via the UK payroll to limit the PAYE payable to UK workdays only. 

Where an individual from a treaty country spends less than 60 days in the UK, HMRC accepts that the individual has not become sufficiently integrated into the UK business and by concession they will waive the obligation to account for PAYE on the individual’s earnings. This concession has become known as the ‘60 Day Rule’. 

However, it is crucial to understand that this threshold should not be considered in isolation each tax year as individuals can still exceed 60 days if it is known they will spend more than 60 days in the UK over a longer period (also known as a ‘linked period’).

It should also be noted that where treaty relief is not available for employees with 60 days or less in the UK, consideration should be given to using/agreeing HMRCs special arrangement (Appendix 8), which allows employers to account for PAYE on an annual basis and report this to HMRC by 31 May following the end of the tax year. 

Businesses should assess the extent of visits to the UK by employees of their overseas operations and consider an STBV agreement with HMRC. PAYE withholding may be required for many visitors without such an arrangement in place and it is a key area of focus for HMRC in PAYE audits and other tax compliance checks. 

At Azets, our Global Mobility specialists have extensive experience in assisting employers with the application and implementation of STBV agreements. 

With the STBV reporting deadline of 31 May fast approaching, please get in touch via the form below or contact your usual Azets adviser to determine how they can support you.