We live in a world of mobile working where individuals can be sent to work around the world for their companies. In a series of case studies looking at sending workers overseas, we now look at a UK employer sending an employee to work abroad. Again the UK employer does not have an overseas branch or entity and so will not be registered for tax purposes in the host country.
The UK Company is obliged to continue deducting PAYE from the amounts paid to the individual, subject to any changes notified in the tax code. It may be possible, if the employee is going to be overseas for more than a tax year, that they can apply to HMRC to have no tax deducted from their salary. This has to be done by the employee, not the employer. It is also possible, that the host country will want to tax the individual and so consideration will be needed as to whether additional tax is due overseas.
Working in Peru
We have recently had an individual sent to work in Peru. It was initially thought that he would be engaged directly in Peru and this would require a Peruvian payroll to be set up and tax paid locally. However, on review of the employment contract it was found that the employer was based in the UK and so PAYE could continue being deducted. The individual then applied to HMRC for a no tax code to be issued and a full tax refund was paid.
In the UK, the individual would have no tax liability as they had been non-resident for more than one complete tax year.
We have engaged with our international associates for them to deal with the local tax position.
National Insurance obviously continues to be a consideration as the individual may want to continue keeping a UK record for the period when they were overseas.
There are special rules in relation to allowing individuals to carry on paying National Insurance in the UK but this depends on which country they are going to work in. This can either be countries in the European economic area or those for which we have specific agreements.
Peru is not one of these and so the UK employer will continue to deduct National Insurance for the first 52 weeks they work abroad or twelve months, after which they should stop making any deductions.
An individual can opt to make voluntary contributions and would need to engage with HMRC directly on this matter. This means that our individual sent to Peru has had National Insurance deducted for the first twelve months, but latterly no deductions have been made. This will continue until they change employment or return to the UK.
If you are thinking of sending any workers overseas, please do get in contact with our International Tax Expert, Lucy Orrow to discuss matters with you.
- Sending an employee to work abroad – Norway
- Sending an employee to work abroad – Spain
- Coming to work in the UK from Australia
- Case Study: Coming to work in the UK from Poland