Cross-border employment tax compliance

With the end of the UK tax year fast approaching, we have set out below the key areas that employers should now be focusing on.

2022/23 year-end reporting

• Employers with any form of globally mobile workforce, should be checking that they are fully compliant in terms of PAYE and National Insurance Contribution (NIC) operation. The tax year end, i.e. month 12, is a good opportunity to review your globally mobile workforce to ensure you have taken the necessary steps to capture all data and take appropriate action in terms of operating PAYE and NIC.
• In general, all compensation – wherever it is paid, must be reported for PAYE and NICs, unless you have agreed with HMRC to operate it on a reduced basis. This compensation needs to be reported accurately and in real-time, unless you have agreed with HMRC to report on a best estimate basis. 
• Employers may also have UK payroll reporting obligations in respect of business visitors to the UK, unless a Short-Term Business Visitors Agreement (STBVA) is entered into with HMRC. Caution should be taken here, as not all business visitors may be covered by a STVBA. In respect of those visitors who are not covered, there is the option to operate a relaxed form of payroll reporting, but again prior agreement needs to be obtained from HMRC.  
• Employers in the UK should also check whether they have any directors who are based abroad, but make visits to the UK to perform their UK board director duties. These activities are likely to trigger tax liabilities and payroll obligations in the UK. If so, the Month 12 payroll can be used as an opportunity to address this. 
• Employers both in and outside the UK, should consider whether any benefits in kind have been provided to UK employees or secondees and if so, what the reporting obligations are. Form P11D should be completed and any Class 1A NICs paid on the due dates. In addition, any benefits that are provided on a more general business such as staff entertaining, gifts and vouchers are normally accounted for via a PAYE Settlement Agreement (PSA). A PSA is an annual arrangement with HMRC to settle the liability arising on behalf of the employees.
• It is also the time to collect and capture any information that needs to be disclosed in relation to employment related securities. The online reporting for both this and the approved schemes like Enterprise Management Incentives (EMIs) can take time to pull together and submit before the deadline.

Cross border remote working

• Given a scarce talent market, cross border remote working arrangements continue to gain traction with employers of all shapes and sizes. At the same time the more classic cross-border secondment and transfer of staff within multinational organisations continues to rebound strongly. It is important to note that both cases can create potential unexpected payroll obligations for employers. Not meeting these obligations can expose the employer to significant payroll compliance risks including penalties and interest. The approach to the end of the year should focus the mind on what payments and expenses need to be reported, before the payroll closes.
• In a number of jurisdictions, the fiscal authorities understand the complexity around mobile employees and target this population for review in payroll and compliance audits. Review and action are essential. Having gaps in this area is a red flag to fiscal authorities, which suggest other areas of compliance such as corporate tax or labour law may also not be correct, leading to more scrutiny overall. Note that action may be required in more than one country, in the case of remote workers which is the employment and work location. As each country has its own rules, unfortunately there is no one-size-fits-all solution, so a case by case approach would be needed to ensure appropriate resolution.

Conclusion

The emergence of cross border home working has meant that payroll tax and reporting issues typically associated with expats of large multinational organisations, are now arising through different working arrangements, involving employers and organisations that may have no international footprint at all. This trend will likely result in increased audit focus from tax authorities around the world, so dedicating time and attention to this area will be increasingly key to ensuring risk and costs are appropriately managed. 

If you would like to discuss further, please do not hesitate to contact Dinesh Jangra or your usual Crowe contact.