In our previous article, we looked at the issues that employers may face if an employee of a UK company wants to work overseas. Here, we want look at the opposite position – where a non-UK employer has employees or consultants working independently in the UK.
For overseas employers, key to understanding the issues is considering whether the non-UK employer has, or will have by virtue of engaging the UK individual, a UK corporation tax exposure by virtue of being viewed as trading in the UK through a permanent establishment. This can either be through having a place of business in the UK through which the trade of the overseas business is being carried on, or by having a dependent agent in the UK (being someone who is regularly negotiating and/or entering into contracts on behalf of the overseas company). For these purposes it is not determinative if the individual is intended to be self-employed, and the use of a home office does not automatically avoid the risk of creating a ‘place of business’ in the UK. Detailed advice should be taken on this point and overseas employers should, amongst other things, consider what the individual will be doing in the UK. If a business has permanent establishment in the UK, this will not just affect the corporate tax position but could also give rise to other compliance obligations.
Employment Tax Obligations
The test of whether an overseas entity has an obligation to deduct income tax and national insurance contributions (“NICs”) from the individual’s salary (under the Pay as You Earn or PAYE rules) and account for such amounts to HMRC – because it has sufficient commercial presence in the UK – or have an obligation to pay employer NICs to HMRC – because it is resident, present or has a place of business in the UK – is distinct from the question of whether or not the overseas entity has a UK permanent establishment. Indeed, even if the overseas employer does not have sufficient presence in the UK to constitute a UK permanent establishment it may still have an obligation to operate PAYE and/or account for employer NICs. Each of these rules are separate from one another are fact specific and would need to be considered on a case by case basis.
Where an overseas employer does not have any obligations to operate PAYE, and chooses not to register for PAYE in any event, the relevant individual will then be responsible for accounting to HMRC in respect of his or her UK tax liability by agreeing special measures with HMRC as to how his or her employment income would be taxed.
The next step is to consider the employment status of the individual and in particular if they are self-employed or are an employee. Even where the individual is a consultant and they provide their services via an intermediary, such as a limited company, the overseas company may still be required to operate UK PAYE in respect of the payments made to that individual’s intermediary if it has a UK connection (i.e. a permanent establishment in the UK). This is due to the application of the ‘off payroll working rules’ that came into force in April, which require the end user of those services – the overseas company – to consider whether that individual is a deemed employee for UK tax purposes. This requires a detailed review of the terms of the services being provided and consideration of whether the way in which the individual works is more akin to employment rather than self-employment.
Even where the employer has no place of business in the UK, it may be required to auto-enrol eligible workers into a UK registered pension scheme if the worker is working in the UK. As this is usually done in conjunction with PAYE, an overseas employer not operating PAYE may have to establish a PAYE payroll through which employees are paid and pension contributions made. We can recommend small payroll providers, and compliant pension schemes if required.
Where foreign visitors to the UK are planning to work remotely during their stay, it is important to realise that the main purpose of their visit is to undertake a permitted activity (such as tourism/visiting family/attending business meetings). Whilst visitors are permitted to keep up to date with their work emails in the UK, they cannot continue their day to day job remotely. Remote working is not a permitted activity and therefore, if it is their sole reason for coming to the UK, they could be denied entry. Further, any finding of illegal working can have criminal/civil consequences for the individual depending on the severity as well as similar implications for the UK business (if applicable) inviting them to the UK.
All employers with a place of business in the UK must have employer’s liability insurance that meets certain criteria. Even if an employer does not have a place of business in the UK, they may want to consider putting this insurance in place, just in case they are wrong about the analysis. It is a criminal offence not to have this insurance in place if required.
The UK-based employee will likely benefit from UK employment rights rather than the rights of employees in the country of the employer. If the employer’s standard employment contract template is being used it may need to be tailored to meet local requirement.
Rights and benefits back home
If the individual is moving on a permanent or semi-permanent basis it makes sense to transition them to UK based benefits. If the duration of the time in the UK is relatively short this may not be necessary, but you should check that if an employee is based outside the UK for a period of time, whether they lose any tax advantages of any of their benefits or whether certain benefits are not available to them.
So, what do you need to do?
As an employer, you should check whether or not you will be within the UK corporation tax net due to trading in the UK through a permanent establishment, or sufficient presence to have to operate PAYE and/or account for employer NICs. If you will not have a permanent establishment you may have more flexibility to structure your UK presence to manage any other obligations but we would recommend that advice is sought on the arrangements you are putting in place and keep them under review, in particular if the number of individuals working for you in the UK increases or if their roles change. You should also consider whether you can continue to offer your UK based employees the same benefits and whether their being in the UK affects the tax treatment of any benefits back home. As noted above, care should also be taken with any consultancy arrangements where the overseas entity has a UK connection (other than via the consultant’s intermediary entity).
If you need any assistance with determining whether you are affected by any of the above points, whether you are an employer or employee, please get in touch.