PAYE81518 - PAYE operation: international employments: tax treaty non-resident employees - PAYE notification
Section 690D ITEPA 2003
An employee is treaty non-resident for a tax year if they are UK resident in that tax year under the Statutory Residence Test but are treated as being resident in another country for that tax year under the terms of a Double Taxation Agreement between the UK and that country.
Where an employee is treaty non-resident for a tax year, UK domestic legislation will apply as it normally would to a UK resident individual. However, the employee can claim double taxation relief on their foreign employment income under the relevant Double Taxation Agreement in their Self-Assessment tax return.
When an employee is, or is likely to be, treaty non-resident at any time in a tax year (the 'notifiable year') and works wholly or partly outside the UK, their employer, or a person designated by their employer, can notify HMRC of their intention to treat a specified proportion of the employee’s income as not being PAYE income, so that they will only operate PAYE on part of the income paid to that employee.
The payments affected by the notification are 'treaty affected payments'. A treaty affected payment is a payment of, or on account of, employment income which is likely to be relieved under a double taxation arrangement. The amount to be specified as not a payment of PAYE income in the notice is the 'treaty relieved proportion'. This is the best estimate that can reasonably be made of the proportion of a treaty affected by payment which is likely to be relieved of UK tax under that double taxation agreement.
An individual employee can be both a qualifying new resident and a treaty non-resident during a tax year. For more information about this interaction, please see PAYE81525
Where a valid notification is made, it has effect from the date that HMRC acknowledge receipt of the notification and allows the employer to only operate PAYE on the proportion of any payment which is expected to relate to UK duties.
Where a notification is made on the basis that an employee is, or is likely to be, treaty non-resident for a tax year, that employee will need to file a Self-Assessment tax return for the tax year.