As we approach the end of the tax year, employers will be preparing for their end-of-year payroll obligations. Listed below are some of the planning and compliance matters that employers and employees may need to think about.
Employer Planning Highlights
Consider applying for a Short Term Business Visitor Concession for employees expected to stay in the UK for less than 183 days in a 12-month period
If you have or plan to have employees visiting from overseas to work as part of your UK workforce, then whilst they may remain employed outside the UK, if they are being managed in the UK or are part of a UK team there could be a PAYE reporting obligation on the UK business. This obligation may arise from the first day of work in the UK. HMRC refer to visiting employees as short term business visitors (STBV).
The PAYE rules for an STBV can be relaxed if the UK employer asks HMRC to apply STBV concessions. HMRC may grant this concession where an STBV is:
- tax resident in a country with which the UK has a Double Tax Treaty under which the Dependent Personal Services/Income from Employment article (Article 15 of the OECD Model Tax Convention, or equivalent) is likely to apply;
- either (a) coming to work in the UK for a UK company or the UK branch of an overseas company or (b) legally employed by a UK resident employer, but economically employed by a separate non-UK resident entity;
- expected to stay in the UK for 183 days or less in any 12-month period.
Organisations are required to execute an agreement with HMRC that requires annual reporting of business visitors in exchange for a relaxation of the PAYE obligation (by 31 May following the end of the tax year).
- Ongoing tracking of business travellers is required to support annual reports and reduce year-end reconciliation work where data is otherwise difficult to retrieve.
- 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, including that it is not limited to a single tax year and can apply across tax years.
Employee Planning Highlights
Overseas workday relief
A special relief called overseas workday relief could allow employees who recently came to the UK, carry out duties both in and out of the UK under a single employment contract, and do not remit their overseas earnings to the UK, to receive those earnings free from UK tax. This applies only to employees in the first three years of becoming UK resident for tax purposes.
Detached Duty Relief
For employees seconded by an overseas employer to its UK operation for up to 24 months, the cost of travel and accommodation would not be subject to UK income tax and NIC on such individuals. This relief is known as detached duty relief and can be a substantial saving for the employee.
Employer Compliance Related Matters
Employment related securities (ERS) - due date for submission 6 July
UK employers have an annual obligation to disclose certain shares or securities transactions that occurred during the tax year involving employees and directors. The definition of securities for these purposes also includes units in a collective investment scheme, including a partnership interest in a carried interest LP (while noting separately that the income-based carried interest rules do not apply where the carried interest is an employment related security). The deadline for disclosing ERS transactions is 6 July following the end of the tax year. Even if no reportable transactions took place, a nil return is still required if the employer is registered with HMRC for ERS filing.
PAYE settlement agreements (PSA)
By 31 May, employers need to provide employees with Form P60, and by 6 July P11D forms need to be submitted to HMRC and employees in respect of employment benefits and expenses.
It can sometimes be missed that staff entertainment and gifts to staff are also employee benefits. Subject to certain exemptions, these expenses could therefore be taxable on employees (and reportable on a P11D). Disallowing staff entertainment in the computation of taxable trading profits does not avoid benefit reporting.
Employers can enter into an agreement with HMRC called a PAYE Settlement Agreement (PSA), which allows the employer to make a payment in respect of tax and national insurance arising on minor, irregular, or impracticable expenses or benefits for employees (for example, staff entertainment). Employers need to apply for a PSA before 5 July and PSA tax and NIC need to be paid by 22 October.
Please feel free to contact Sutharman Kanagarajah for more information about this matter.