Location of employees – are they where you think they are?

Up until recently, we would have been having a conversation about international travel, employees working overseas and what this might mean with regards to tax status. The events of the last six months have changed the emphasis here and employers may have to revisit arrangements that are in place and possibly manage employees’ expectations.

 Avoid unpleasant surprises

The actual physical location of work can determine the tax treatment of the remuneration for it and can also be a factor in determining the personal tax residence position of the individual.

Where an employee has been working overseas for any significant proportion of time, it may be that there is an agreement in place with HMRC to restrict the PAYE deducted from the salary so that only the ‘UK Portion’ is taxed (often called an s690 ruling). If the place of work has changed because the individual is stranded in one country or another (or simply the pattern of work will change going forward, it might be worth revisiting the arrangements. This will ensure that there are no unpleasant surprises for your employee in the form of an unexpected tax bill if insufficient PAYE has been taken during a year.

Separate arrangements may have been made for NIC purposes and this will be worth checking as well.

Managing expectations

There are occasions where for a variety of reasons, an s690 plan is not in place, but rather the individual claims a tax refund at the end of the year once the actual ratios are known. Employers might like to remind such employees that the proportion has changed for both last tax year and the current one and that their expectations of a tax repayment might need to be managed.

The s690 arrangements apply where a UK payroll remunerates for worldwide earnings.  Conversely, if the employer is based outside the UK but the employee is here, then the individual will need to check their own residence position and establish if they have inadvertently become UK resident. The consequences of this can be wide ranging and although there is an element of relief for the extraordinary circumstances of the pandemic, it is not a complete disregard and we suggest that specific positions are reviewed carefully.

Many countries around the world have also introduced some element of disregard of presence due to the pandemic, but it does vary widely, and we recommend that the position in the other jurisdiction is also verified.

We are here to help

Here at Mercer & Hole, we can assist with obtaining the correct information for individual countries (through our colleagues at TAG Alliances if necessary). Please don’t hesitate to contact me or the team for help and advice on this matter.