Find out how to work out and make PAYE deductions for employees who come to work in the UK.
Check an employee’s right to work in the UK
You must check a person has the legal right to work in the UK before they start working for you.
Paying tax and National Insurance contributions
You must operate PAYE tax and National Insurance contributions for employees coming to work in the UK from abroad, whether they’re working for you on a temporary or permanent basis.
If the employee is still employed by an overseas business and you do not actually pay them, you’re still treated as their employer and are responsible for recording and reporting their earnings and PAYE deductions to HMRC. These are called ‘seconded employees’.
What you need from your new employee
If your new employee has come from abroad they will not have a form P45.
You’ll need their:
- full name
- date of birth
- full address (including postcode)
- National Insurance number (if the employee knows it)
To work out what deductions to make from your employee’s pay:
- you’ll need their starter declaration
- find out if they have a student loan which is not fully repaid
The starter declaration should say one of the following:
- this is their first job since 6 April and they have not been receiving taxable Jobseeker’s Allowance, Employment and Support Allowance, taxable Incapacity Benefit, state pension or occupational pension
- this is their only job, but since 6 April they have had another job, or have received taxable Jobseeker’s Allowance, Employment and Support Allowance or taxable Incapacity Benefit - they do not receive a state or occupational pension
- they have another job or receive a state or occupational pension
You must keep a record of your employee’s answers and report this to HMRC on your Full Payment Submission (FPS).
HMRC has a Starter Checklist you can use, but do not send this, or any other records you keep, to HMRC.
Agreement to operate PAYE on an employee’s earnings for UK work
You can apply to operate PAYE on an employee’s earnings for work they do in the UK if your employee is either:
- not a UK resident and works both inside and outside the UK
- resident in the UK, the remittance basis applies to them and they meet the 3 year period of non-residence
If HMRC agree you can operate PAYE in this way it will apply to all payments you make to those employees, including:
- termination payments
- share-based remuneration
Changing an agreement due to coronavirus (COVID-19) measures
If you already have an agreement with HMRC in place, you can ask to amend it if the measures that have been introduced to stop the spread of coronavirus means an employee has been unable to leave or return to the UK.
This will mean if the employee:
- has been unable to leave the UK in the 2020 to 2021 tax year you’ll be able to operate PAYE on 100% of their earnings
- is unable to return to the UK indefinitely UK tax could be reduced or may not be due, depending on the employee’s circumstances
To ask HMRC to amend your agreement write to:
- Employers: expatriate employees for expat employees
- Self Assessment: general enquiries for all other employees
- work wholly or partly in the UK for a UK resident employer on assignment whilst remaining employed by an overseas employer
- are assigned to work wholly or partly in the UK at a recognised branch of their own employer’s business
- are included by an employer within a dedicated expatriate scheme or within an expatriate modified PAYE scheme
You’re responsible for PAYE tax on seconded employees earnings, however the rules for what tax code to use and what to include in their payroll records are different.
Check the table below to find out which tax code to use.
|Employee present circumstances||Tax code to use for 2020 to 2021|
|Intends to live in the UK for 183 days or more||1250L cumulative|
|Intends to live in the UK for less than 183 days||1250L week 1/month 1 (unless employee is an EEA citizen)|
|Will be working for you both inside and outside the UK, but will be living abroad||1250L week 1/month 1 (unless employee is an EEA citizen)|
|EEA citizen||1250L cumulative, even if the employee has confirmed statements 2 or 3 in the New Starter questions for your employee section|
|Your employee has not given you enough information about their present circumstances before their first payday||0T week 1/month 1|
What to include in the payroll record for a seconded employee
New starter information
The first FPS you send should say ‘Yes’ to whichever of the following apply, otherwise enter ‘No’:
- they intend to live in the UK for more than 183 days or more
- they intend to live in the UK for less than 183 days
- they’ll be working for you both inside and outside the UK, but will be living abroad
- they’re from a country in the European Economic Area (EEA)
- they’re under an EPM6 (Modified) Scheme for tax equalised expatriate employees
- they pay back a UK student loan
Only complete these fields if your employee is seconded - for all other employees from abroad those data items must be left blank.
If the employee does not give you information about their present circumstances, declare this to the best of your knowledge.
If the employee has a UK student loan, start making repayment deductions from their first payday.
You must keep records for the current and previous 3 tax years.
What to include in the FPS every time you pay an employee
You must include the employee’s:
- name (including surname/family name as well as first and second names)
- date of birth
- gender as shown on the documents you used to check the employee’s entitlement to work in the UK
- UK home address (not your business address) including postcode
- National Insurance number, if known (do not make one up or use a temporary or dummy number)
If an employee does not have to pay UK National Insurance contributions leave the National Insurance contribution deductions or payments fields blank on the FPS.
National Insurance contribution exceptions
Employees from another EEA country or Switzerland
If the employee holds a valid Portable Document A1 (or E101) issued by the authorities of the other country, they will continue to pay contributions in that country for the period covered by the form.
Employees from a country with a Reciprocal Agreement (RA) or Double Contribution Convention (DCC) with the UK
If the employee holds a certificate issued by the authorities of the other country, they will continue to pay contributions in that country for the period covered by the certificate.
Employees from a country outside the EEA and Switzerland, or which does not have a RA or DCC agreement with the UK
These employees are exempt from paying UK National Insurance contributions for the first 52 weeks of their employment here provided that:
- they’re not ordinarily resident in the UK
- they normally work outside the UK for a foreign employer
- they’re sent to work in the UK for a time by that foreign employer
- when in the UK they continue to work for that employer
List of EEA, RA and DCC countries
The EEA countries are:
- Czech Republic
- Republic of Ireland
- Switzerland (Switzerland is not part of the EEA but is treated as if it were for social security purposes)
The RA countries are:
- Isle of Man
- Federal Republic of Yugoslavia (including Serbia and Montenegro, Bosnia-Herzegovina, and North Macedonia)
The DCC countries are:
- Republic of Korea
Modified PAYE arrangements
If you’ve an agreement with HMRC to operate an Employment Procedures (EP) Appendix 6 scheme, only one FPS is needed each month, irrespective of the number of payments made either in the UK or overseas. The FPS must include one month’s portion of the total grossed up estimated cash and non-cash earnings for the year.
The estimated pay including all estimated benefits in kind is reported in the ‘Taxable Pay to Date’ and ‘Taxable Pay in this Period’ fields.
No entries are needed in the fields:
- Benefits Taxed via Payroll
- Benefits Subject to Class 1 NIC
- Benefits Not Subject to Class1 NIC
Most EP Appendix 6 payrolls are shadow payrolls used to account for tax and National Insurance contributions only.
Any elements of UK pay, must not be included in the FPS for the local payroll as this may create duplicate records. These payments must be made outside payroll.
Where the EP Appendix 6 scheme is based on actual rather than estimated pay and is used to deliver earnings, the ‘Deductions from Net Pay’ field should be used as necessary and the Bacs hash code entered for any amounts delivered by the Bacs system.
You can continue to pay the tax and National Insurance contributions quarterly if you have 5 or fewer employees, but you will need to contact HMRC before switching to quarterly payments.
For employees who have left the UK during the tax year, in accordance with EP Appendix 6, set the irregular payment pattern indicator and leave the employee record open until the month 12 adjustment is made. The actual date of leaving will be entered with month 12 figures on the month 12 FPS.
If you’ve a linked agreement for National Insurance contributions under EP Appendix 7A you must include the National Insurance contributions on the estimated pay on the FPS with the tax each month under the EP Appendix 6 scheme.
Non-UK bank accounts
Amounts paid into overseas accounts should be reported in the data field value of deductions from net pay in the period. This will make sure that the amount paid into the UK bank account is correctly confirmed by the Bacs hash code.
Made by the overseas employer
Tax and National Insurance contributions must be calculated and reported for the correct pay period. Corrections to previous month’s payments for irregular payments and foreign taxes both paid by the overseas employer, can be reported by submitting an additional FPS or revised year-to-date figures on the current FPS.
Work done in and outside the UK
Special rules apply for employees who are not resident in the UK or are resident in the UK and entitled to overseas work day relief.
You can apply for a direction from HMRC to operate PAYE only on the percentage of the employee’s total earnings that are for work in the UK. This applies to all payments made by the employer including termination payments and share based remuneration.
If you’ve received a direction, you must report only the taxable portion of pay on the FPS in the ‘Taxable Pay to Date’ and ‘Taxable Pay in this Period’ fields.
Enter the full earnings the National Insurance contributions are worked out on in the ‘Pay subject to NICs in this Pay Period’ field.
If any part of the pay is paid using the Bacs system, the net pay must be balanced to what is shown in the payroll information by including any payment made outside the Bacs system in the ‘Deductions from Net Pay’ field or by adding back any pay not subjected to PAYE tax or National Insurance contributions in the ‘Non Tax or NIC Payment’ field.
Short term business visitors
You must operate PAYE on earnings for short term business visitors who work for you, unless you have a Short Term Business Visitor Arrangement (EP Appendix 4). Do not include short term business visitors covered by EP Appendix 4 in the FPS.
You must operate PAYE if the employee no longer meets the EP Appendix 4 conditions, which may be due to:
- a change of circumstances
- excess UK workdays or days
- change of economic employer
- change of nature of UK duties
Your next FPS after the change must include the earnings for previous months, as appropriate. An Earlier Year Update is needed if visits towards the end of the year result in late identification of employees ceasing to meet EP Appendix 4 criteria.
International National Insurance issues
If your employee has a certificate of coverage confirming their home country social security cover continues, leave the National Insurance letters and values fields blank for that employee.