As businesses work increasingly ‘cross-border’, so do the people who work for them. STBVs are employees who are employed, pay-rolled or live in one location, but also work in another.
STBVs may also be contractors, who can be regarded as employees in the UK, despite how they are categorised overseas.
STBVs can give rise to immigration and employment law issues, as well as tax complications. Employers should ask themselves:
Taxation can be complicated when it comes to:
If these risk are not managed, the repercussions can be costly and disruptive.
Employers have to know who is traveling, and why. Information from diaries and timesheet systems can be used. There are also services that enable direct tracking of employees through GPS phone applications; a number of accountancy, immigration and relocation firms now offer this service.
Once an employer has information on who is traveling, they need to review if compliance is being triggered. This usually involves the application of immigration, income tax, permanent establishment and social security rules to the travel data. This analysis could create a post-travel risk report, which shows what has happened, and what may happen in future, if data is extrapolated. Some systems offer a pre-travel assessment which stops the travel process while flagged compliance actions are addressed.
These may include:
There is no one size fits all. The correct approach will depend on an organisation’s:
There are a number of UK technical issues and reporting easements for pay-as-you-earn (PAYE), and the National Insurance contribution/social security, which need to be considered. Questions employers should ask include:
If the employer doesn’t have a presence in the UK and there is no host UK employer, then in theory no PAYE is due. However, this does not mean the employee is not taxable in the UK – the employee may need to file UK tax returns under self-assessment.
In theory where an employee is working in the UK, PAYE should apply from the employee’s first day of work. This causes administrative difficulties like:
HMRC offer two easements (A special PAYE arrangement and Appendix 4 STBVA agreement) to the starting position, which apply on application; they can’t be used unless an employer is specifically approved by HMRC.
Easements do not apply to directors of a UK entity. Non-resident directors are viewed as having an office or employment in the UK, so care needs to be taken to meet these payroll obligations.
The compensation that relates to directors’ duties in the UK should be reported through UK payroll with the appropriate PAYE and NIC deductions. The NIC position can be quite complex (see below).
In order to establish which easements apply, it is important for an employer to consider where their STBVs are visiting the UK from. This has two meanings:
This agreement provides exemption from PAYE where there is relief under Double Taxation Agreements (DTA).
The OECD model treaty sets out the relief criterion as:
In summary, this rule allow enables a position that means that a cross charge to the UK (which would normally deny relief under the DTA) is not conclusive, if the period of work in the UK is less than 60 days.
Employers also need to show that the employees are on an overseas payroll and the period (up to 60 days) does not form part of a more substantive period. The STBVA can’t be used for employees visiting from branches of a UK entity.
They must also consider how HMRC applies the concept of the ‘Economic Employer’.
This arrangement, currently limited to 30 workdays per tax year, allows the set-up of an annual PAYE scheme, under certain conditions.
In May 2018 HMRC launched a consultation to consider how, and if, the easements may be further extended. The recent Budget saw an expected announcement to the changes that will be made for STBVs from Foreign Branches. New rules will apply from 6 April 2020. The new rules provide for an extension to the maximum number of annual workdays that can be subject to a special arrangement/easement from 30 to 60 and provide an extension to 31 May (from 19 and 22 April) following the end of the tax year for reporting. The rules fall short of providing parity to arrangements that exist for organisations that don’t operate with branches. The changes will ease the administration on employers in the U.K. with branches overseas. In the context of U.K. attractiveness with Brexit looming the adoption of the Appendix 4 rules (exemption for up to 183 days) would have been welcome but that would have come with a cost to the treasury.
HMRC accepts that the 30 UK workdays limit does not include workdays where the duties performed were incidental to a role held overseas, but the definition of ‘incidental duties’ only applies in limited circumstances.
Employers also a need to consider National Insurance Contributions (NICs) rules.
Because STBVs usually live in another country, establishing NICs due requires a cross-border perspective. It’s normally necessary to understand if the domestic rules are applicable, or if rules under specific agreements apply.
The law provides for a potential social security liability on an employee who arrives in the GB to work even if they only spend a single day in the UK.
The legislation does provide for an exemption linked to 52 weeks of continuous residence in the UK, so NIC could be due after 52 weeks.
A UK entity may also have a social security liability if they are treated as ‘host’ employer under the special rules in the ‘Social Security (Categorisation of Earners) Regulations 1978’.
A person working in the UK may be covered by the regulations which cover the EU and Iceland, Liechtenstein, Norway and Switzerland. If so, the UK domestic legislation is overridden.
The EU rules allow contributions to be paid in a single country and there is a developed certification process (Forms A1 are issued) to support this.
To determine the applicable EU legislation, various factors have to be considered. These include:
In some Member States a non-executive director may be considered self-employed. A policy concession for non-resident directors who attend board meetings in the UK (so that no UK NIC is due) does not apply where the EC Regulations are applicable.
The UK has social security agreements with some non-EU countries. The basic principle of these is that social security is payable in the country in which the employee is resident, provided certain conditions are met. A certificate of coverage is required to confirm the position.
STBVs provide a real challenge for UK employers. The key message is do something – doing nothing is not an option.
Seeking specialist advice is a good idea, and we have the expertise and experience to help you navigate this complex area. Crowe also provides a unique solution, TrackMyTrip, which offers a market-leading tool for those working with STBVs, in a cost effective manner.