PAYE for employees who come to work in the UK, the differences in calculating and making deductions.
Check an employee’s right to work in the UK
Before somebody from abroad starts working for you, you must check they have the legal right to work here by using the online tool.
General rule for paying tax and National Insurance contributions (NICs)
For employees coming to work in the UK from abroad you must operate PAYE tax and NICs in the usual way, whether they’re working for you on a temporary or permanent basis.
Even if the employee remains employed by an overseas business and you don’t actually pay them, you’re treated as their employer. You’re responsible for recording and reporting their earnings and PAYE deductions. These are ‘seconded employees’.
There’s more about seconded employees, and about exceptions to the rule, later in this guide - and these are not always the same exceptions for PAYE tax and NICs.
New starter questions for your employee
If your new employee has come from abroad they won’t have a form P45. You’ll need to get 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 their pay:
- get an employment declaration from your employee
- find out if they have a student loan which is not fully repaid
In the employment declaration, ask your new employee to declare which one of the following applies to them:
- this is their first job since last 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 last 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
Keep a written record of your employee’s answers and report this information to HM Revenue and Customs (HMRC) on your Full Payment Submission (FPS). HMRC has an optional Starter Checklist you can use but don’t send this form, or any other records you keep, to HMRC.
PAYE tax exceptions for seconded employees
If an employee from abroad falls within the definition of a seconded employee, you’re responsible for PAYE tax on their earnings - but the rules for what tax code to use and what to include in their payroll record are different.
Seconded employees include individuals:
- working wholly or partly in the UK for a UK resident employer on assignment whilst remaining employed by an overseas employer
- assigned to work wholly or partly in the UK at a recognised branch of their own employer’s business
- included by an employer within a dedicated expatriate scheme or within an expatriate modified PAYE scheme
Using the right tax code for a seconded employee
Check the table below to see which tax code to use. Don’t use this table for employees from abroad who aren’t seconded employees.
|Employee present circumstances||Tax code to use for 2016 to 2017|
|Intends to live in the UK for 183 days or more||1100L cumulative|
|Intends to live in the UK for less than 183 days||1100L 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||1100L week 1/month 1 (unless employee is an EEA citizen)|
|EEA citizen||1100L cumulative, even if the employee has confirmed statements 2 or 3 in the New Starter questions for your employee section|
|Your employee hasn’t 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
If you have a seconded employee on your payroll you must report this to HMRC.
New starter information
On the first FPS you send for this employee you should indicate ‘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 doesn’t 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.
This starter information can be gathered and stored however you prefer - letter, email or a form. Keep these records for the current tax year and the previous 3 years.
HMRC has an optional Starter Checklist for employees seconded to work in the UK by an overseas employer you can use but don’t send this form, or any other records you keep, to HMRC.
In the FPS every time you pay an employee, include their:
- 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 (but do not make one up or use a temporary or dummy number)
Exceptions to NICs
An employee who has been sent to work in the UK won’t have to pay NICs in the UK if they are from:
- another EEA country or Switzerland and hold a valid Portable Document A1 (or E101) issued by the authorities there - they will continue to pay contributions in the other country for the period covered by the form
- a country with which the UK has a Reciprocal Agreement (RA) or Double Contribution Convention (DCC) and hold a certificate issued by the authorities there - they will continue to pay contributions in the other country for the period covered by the certificate
a country which is outside of the EEA, or Switzerland, or with which the UK has an RA or DCC agreement - they’ll be exempt from paying UK NICs for the first 52 weeks of their employment here provided that the following conditions are met:
- 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
The EEA countries are: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Hungary, Iceland, Republic of Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland.
The RA countries are: Barbados, Bermuda, Guernsey, Israel, Jamaica, Jersey, Mauritius, Philippines, Turkey, USA, Federal Republic of Yugoslavia (including Serbia and Montenegro, Bosnia-Herzegovina, and the former Yugoslav Republic of Macedonia). There is also an agreement with the Isle of Man.
The DCC countries are: Canada, Chile, Republic of Korea and Japan.
What to include in the payroll record for an employee who doesn’t have to pay UK NICs
You must still tell HMRC about your new employee from abroad on the first FPS you send for them and on every other FPS when you pay them. See the sections of this guide New starter questions for your employee and What to include in the payroll record for a seconded employee.
Leave the NICs deductions or payments due fields blank on the FPS.
Modified PAYE arrangements
If you have an agreement with HMRC to operate an Employment Procedures (EP) Appendix 6 scheme, only one FPS is required 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 required in the ‘Benefits Taxed via Payroll’, ‘Benefits Subject to Class 1 NIC’ or ‘Benefits Not Subject to Class1 NIC’ fields. Most EP Appendix 6 payrolls are shadow payrolls used to account for tax and NICs only.
Any elements of UK pay, mustn’t be included in the FPS for the local payroll as this may create duplicate records. Such payments must be made outside payroll. Where however 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 via the Bacs system.
You can continue to pay the tax and NICs 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.
Payments to non-UK bank accounts
Amounts paid into the overseas account(s) should be reported in the data field value of deductions from net pay in the period. This will ensure that the amount paid into the UK bank account is correctly confirmed by the Bacs hash code.
Payments made by the overseas employer
Tax and NICs must be calculated and reported by reference to 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 aren’t 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 have 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. The full earnings on which NICs are calculated should be entered in the ‘Pay subject to NICs in this Pay Period’ field.
If any portion of the pay is paid through the Bacs system, the net pay must be balanced to that 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 NICs 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).
You don’t need to include short term business visitors covered by EP Appendix 4 in the FPS. You must however report a payment each month for PAYE that may be due because of a change of circumstances or excess UK workdays/days, or change of economic employer, nature of UK duties, etc which results in an employee no longer meeting the conditions of EP Appendix 4.
Enter the employee on an FPS as soon as you are aware that EP Appendix 4 conditions aren’t met. The first FPS must include the earnings for previous months as appropriate. An Earlier Year Update will be required where visits towards the end of the year result in late identification of employees ceasing to meet the EP Appendix 4 criteria.
International National Insurance issues
If your employee has a certificate of coverage from their home country confirming that home country social security cover continues, leave the National Insurance letters and values fields blank for that employee.