With the festive season over, the start of a new year gives employers an ideal opportunity for a spring clean of their compliance processes and to identify any tax planning opportunities.
Particular consideration should be given by employers with a globally mobile workforce, thanks to the many tax implications potentially created by these individuals, sometimes at a significant cost.
There are mechanisms to alleviate some of the complexities and administrative burdens on both the employer and individual. Taking a proactive approach can help mitigate the chances of tax authorities issuing interest and penalty notices for failure to comply, and can also reduce the likelihood of additional audits being imposed.
Net of foreign tax credit arrangements
For an employee on a UK payroll, should they have a tax obligation overseas alongside a continuing UK PAYE liability, HMRC offers an administrative concession by way of the Appendix 5 Net of Foreign Tax Credit Scheme. In short, this allows an employer to offset the foreign tax against UK PAYE due on the same income, giving double tax relief at source. This scheme should be operated “real-time” and can help cashflow.
Short-term business visitors
There is possible relaxation, or complete exemption, of PAYE for employees on short-term business visits to the UK. The criteria largely focus on the entity bearing the cost, where the individual is resident, the nature of the duties and the number of days spent in the UK, with greater relaxation and less compliance for lower day counts. HMRC is introducing revised rules from April 6 2020 to provide enhanced relaxations for employees from overseas territories with which the UK does not have a double taxation agreement.
Non-resident directors
Many organisations are unaware that the role of non-UK resident director of a UK company carries tax and National Insurance reporting requirements relating to the performance of duties in the UK.
A common misconception is that a non-resident director benefits from double tax treaty protection but this is not necessarily the case. It is important to have a consistent approach for monitoring where these directors are carrying out their duties and the expenses they incur.
With senior management typically among the highest paid, it is easy to see why HMRC scrutinises the processes and policies adopted by employers.
PAYE direction for non-residents
An employee working both inside and outside the UK who is not a UK resident may be eligible to submit an application to HMRC for a direction to operate UK PAYE only on the percentage (best estimate basis) of the employee’s total earnings relating to work in the UK.
This direction would apply to all payments the employer makes (including termination payments and share-based remuneration), with the trade-off being that a UK tax return must be completed to reconcile and report the final
position.
Retrospective compliance
Unlike the UK, most countries’ tax year ends on December 31. In the energy sector, common examples are the United States, Canada, Norway, the Netherlands and
Denmark.
When reviewing operations, if actions are required in any jurisdiction (as well as the interaction with the UK) for a prior tax year, there are options available for retrospective compliance (and in some instances reclaim overpaid/undue monies) and we strongly recommend you seek assistance from professional advisers.
David Purse is a director at Anderson Anderson & Brown
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