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HMRC has increased the number of PAYE enquiries into employers with globally mobile workforces, and the information they are requesting is significant. With the recent change in government and the need to increase tax revenues, global mobility is likely to be considered a fruitful area for future investigations. 

We detail the information HMRC is requesting and identify the areas employers should be reviewing to ensure that they are meeting their PAYE obligations regarding globally mobile employees.

PAYE enquiries concerning globally mobile employees are notoriously long and time-consuming, especially as information may be required from overseas sources and may require translation. Documentation may also be required from overseas tax authorities, like certificates of residence, which could delay the enquiry resolution. 

Policy documents

HMRC’s first request is usually for an international assignment policy, international relocation policy and any inter-company agreements concerning the use of employees (full assignments or short-term business visitors). Larger employers will no doubt have policies in place, but those with smaller globally mobile workforces may treat each assignment individually, with different terms applying to each one. 

Where there is a policy in place, it is likely to cover the benefits and allowances to be provided to the employee. HMRC will cross-check this information with what has been reported. 

International assignments 

In respect of the traditional assignment where an individual is formally assigned to the UK to work for a fixed period, HMRC is requesting the names and details of all such individuals, including confirmation of their PAYE references. We have seen HMRC request this information for each of the tax years from 2020/21 onwards. Other details requested include:

• Letters of assignment and/or employment contracts for a sample of the assignees.
• UK and overseas payslips for a sample of the assignees.
• Details of incentive plans (eg bonus plans, share-related plans and deferred compensation plans), and how trailing income is treated.
• Details of any pension or medical insurance plan that the individuals participate in during their UK assignment.
• An explanation of how employee and employer contributions have been treated for PAYE and National Insurance contributions (NICs) purposes.
• Where NICs have not been operated, an explanation why, along with any relevant documents (eg an A1 certificate).

Recently, we have seen HMRC ask detailed questions about overseas pension schemes, including state social security plans, to determine if the employer contributions should be taxable in the UK.

Short-term business visitors

Under the terms of a double tax treaty, short-term business visitors may ultimately be exempt from UK taxes on their UK workdays. However, the employer is still required to withhold UK PAYE unless they have a short-term business visitors agreement (STBVA) in place and have been making annual reports. Under the enquiry, HMRC is requesting the number of individuals who are not liable to PAYE, along with the number of days they spent in the UK.

For individuals where a double tax treaty is not applicable, HMRC requires the details of those employees and the UK payroll references under which their earnings relating to their UK workdays have been reported (eg an appendix 8 payroll). A double tax treaty is not applicable when there is no treaty with the UK, or the individual is employed by an overseas branch/is an overseas remote worker of a UK employer.

HMRC is also asking for details of how employers track their employees to ensure that all business visitors to the UK are correctly taxed.

If the employer does not have a STBVA in place and has not reported the earnings of any employee from an overseas parent, subsidiary or associated company working in the UK for the benefit of the employer, then HMRC would argue that there is a PAYE failure. HMRC would reach this conclusion even if ultimately there is no tax liability for the employee.

Social security

The social security rules are particularly complicated for globally mobile employees, with different rules depending on whether they normally reside in the EU, a country with a reciprocal agreement or the rest of the world. Normally, an individual would want to stay in their home country’s social security scheme to maintain their record there. Paying UK social security for short periods of time has no long-term benefits for them.

HMRC will request copies of any certificates of coverage under the EU or reciprocal agreement rules confirming that UK social security is not payable.

Self-assessment enquiries

Although not part of the PAYE enquiry, the employees’ self-assessment tax returns may also be reviewed. This review would cover claims for temporary workplace expenses or overseas workday relief.

Where the employee is tax-equalised, any additional tax liability arising from the enquiry would be payable by the employer. It is not uncommon for the assignee to have already returned home before a tax enquiry is concluded. Therefore, any assignment letter should include a clause requiring the employee to cooperate in a timely fashion.

How we can help you

There are several potential pitfalls for the unwary employer when dealing with a globally mobile workforce. In addition, previously UK-only employers are increasingly receiving requests for employees to work remotely overseas, which has implications for tax and social security in both the UK and overseas countries. Remote working can also lead to complications for the employer regarding their own tax position if the employees working overseas create a permanent establishment in another jurisdiction.

We can assist with assignment planning, advising on effective global mobility policies and reporting requirements (payroll-related and tax returns), to ensure that you are fully prepared for any PAYE enquiries.

For further information, please get in touch with Joanne Webber or your usual 91探花contact.