Short-Term Business Visitors –Are You Getting Their UK Income Tax And NIC Right?

In the course of our work, we frequently support companies needing guidance on the tracking and payroll reporting of their Short-term Business Visitors (STBVs). The UK is one of a small number of jurisdictions where there is scope for the relaxation of PAYE (Pay As You Earn - i.e. UK wage withholding) where overseas employees visiting the UK are eligible for relief under the terms of a Double Taxation Agreement (DTA). It is also a jurisdiction where the tax authorities closely scrutinise that companies correctly operate PAYE for their STBVs. The means of obtaining relief from PAYE is by entering into a Short-Term Business Visitor Agreement (STBVA; also known as an Appendix 4 arrangement) with HM Revenue & Customs (HMRC) which is a one off, blanket level agreement between the company and HMRC. The company in return is required to have a robust means of tracking STBVs into the UK, assessing whether they meet the employment income conditions of a DTA and submitting an annual informational report to HMRC by 31 May, following the end of the UK tax year (5 April).

Renewed HMRC Focus Of STBV Reporting

Over the past couple of tax years, HMRC has received fewer STBV submissions due to the pandemic and subsequent travel restrictions. As a result of the administration of the Corona Virus Job Retention Scheme, HMRC have also had less resource dedicated to review submissions and follow up with companies to check all the conditions were met for legitimate relaxation of PAYE. However, we are now seeing ‘nudge’ letters from HMRC reminding companies of the need to robustly track their STBVs, ensure they are correctly identifying that relief from UK tax is legitimate, and reminding that they are expecting submissions by 31 May 2023. This article sets out to cover some of the categories of STBVs that cannot be included on a STBVA, which companies often do not correctly identify and into which HMRC may probe. This article is not exhaustive in identifying such categories, but aims to dispel the misconception that a DTA can always guard against a liability to UK tax, and highlights the perils of excessive fixation solely on the ‘183 day rule’. and the reputational risks involved in noncompliance relating to statutory directors.

For many reasons, it is common within international groups for directors to be employed and paid by one company, but also to hold directorships in several of the group’s businesses across a range of countries. Costs relating to remuneration or travel and subsistence costs may be borne in, or crosscharged to the UK, but even where they are not, UK reporting obligations will arise, which are likely to include operation of PAYE and NIC (National Insurance Contributions – i.e., UK social security) and filing of Forms P11D (expenses & benefits form).

In some cases, non-resident individuals will be appointed as non-executive directors because of the skills they can offer the company, but because they are non-resident and may be considered self-employed in their local jurisdiction (as is not uncommon for statutory directors), the UK reporting and payroll requirements can be overlooked. The overseas implications and obligations for the company will also need to be understood and complied with. This can extend to corporate tax and transfer pricing issues.

Why Is Reporting Compliance For NRDs More Problematic?

The complexity, particularly in a group company situation, is understanding the purpose of business visits to the UK, and whether the UK trip is in the capacity as director, or solely for some other purpose relating to their overseas employment. In the absence of clear information to the contrary, the assumption from HMRC will be that the visit was in capacity as a UK director.

Category 1: Non-Resident Directors (NRDs)

We will devote particular focus to NRDs due to the ease of HMRC identifying them

The frequently used reporting relaxations for other STBVs such as EP Appendix 4 (STBVA) and EP Appendix 8 (PAYE Special Arrangement for STBV; see ‘Branch employee’ section below) do not apply to board directors. If an NRD is a statutory director of a UK group company, they are an ‘office holder’ in that company and any UK duties (board meeting or wider director responsibilities) will trigger a PAYE liability. Therefore, even if an NRD usually attends UK board meetings remotely (by Zoom etc.), but comes to the UK for as little as one meeting a year, an obligation to operate PAYE and report for RTI (Real

Time Information) purposes

Will

arise. There is also a very limited exception for “incidental duties”, but this is qualitative not quantitative, and any work in relation to the directorship will trigger PAYE obligations.

The issue of expenses paid while travelling to the UK to carry out director duties is also complicated: travel costs to and from the UK may be exempt for non-UK domiciled directors, but the facts and circumstances need to be reviewed. Hotel, subsistence, and other costs will usually be taxable as the location where the board meets are likely to be the director’s ‘permanent workplace’ in the UK.

When it comes to the operation of PAYE, the practical pay arrangements for the individual can be problematic. Where duties arise in the UK, HMRC disregards the fact that the individual may be paid for all group directorships from an overseas parent company; the PAYE obligations for those duties fall on the UK company. Details of overseas remuneration will be required to determine the amount on which PAYE needs to be operated, and strictly PAYE should be operated on 100% of the remuneration in the absence of agreeing otherwise with HMRC. It will also need to be agreed how the PAYE will be withheld from the individuals overseas pay.

Does The NIC/Social Security Position For NRDs Follow The Income Tax Position?

The NIC/social security position is different to income tax, and both the company and employee can be liable to pay social security in both the UK and their home country in full, without any relief available for the double charge.

Whether or not the UK duties of an NRD trigger UK NIC depends on the director’s country of residence and whether there is a social security agreement between the UK and that country, which will enable a ‘certificate of coverage’ to be obtained to provide exemption from UK NIC. Even where a ‘certificate of coverage’ could be arranged, unless one has been obtained, NIC needs to be operated.

For countries with which the UK does not have a social security agreement, there is a limited administrative concession which may relieve the obligation to operate NIC. Broadly, the concession can apply if the individual makes brief visits to the UK (two nights or less) to attend board meetings only, and attends no more than 10 board meetings a year (or a single board meeting of up to two weeks). Unless the terms of the concession are met in full, then NIC remains due, and all UK directorships need to be taken into account for this purpose.

As there a number of countries with which the UK does not have a social security agreement, the compliance considerations and obligations need to be understood and managed on an individual basis. For example, the position will be different for an NRD who resides in the USA (where there is a social security agreement), compared to an NRD who resides in Australia or South Africa (there is no such agreement).

How Can HMRC Check Up On NRD Compliance?

For NRDs it is very simple for HMRC to check whether there is potential non-compliance. The UK company’s NRDs will be listed on their Companies House record, and this includes information on their nationality and country of residence, even if the address given is that of the UK company. Cross-checking this data against the company’s PAYE (RTI) submissions can immediately highlight where PAYE is not being operated on one or more of the NRDs in a tax year. Failure to operate PAYE or NIC where required will lead to interest and penalties, potentially scrutiny into wider compliance (including other taxes) and will have implications for Senior Accounting Officer (SAO) reporting for companies within the regime. Getting the tax reporting position wrong can also result in a strained relationship with the director who may understandably be disappointed to have their name associated with noncompliance, even if inadvertent. In these times of increased scrutiny of companies’ tax governance, there are also reputational risks for the business.

employee has to be present in the UK for no more than 183 days in a stipulated period; more often than not in any 12 months period, but depending on the treaty, sometimes in the UK tax year.

For STBVs to be exempt from UK tax under a DTA, one of the other multiple conditions to be met is that the employer of the STBV is not a UK resident company. This presents a challenge to a UK company where there are employees of overseas branches who visit the UK for business purposes. Such employees whilst normally based overseas, under employment contracts issued under the relevant jurisdiction’s employment law, have a UK legal employer. The existence of a UK legal employer precludes them from inclusion on a STBVA and necessitates the operation of PAYE when they work in the UK.

It is fairly common for companies to include STBVs from their overseas branches on a PAYE Special arrangement for STBVs (also known as an Ep Appendix 8). This necessitates a one-off agreement with HMRC.

The Annual PAYE Scheme was introduced to combat the impracticality for employers of having to deal with employees that do not qualify for inclusion on an STBVA. It allows them to account for their work visits to the UK for the whole tax year and operate PAYE at the tax year-end, with tax due and the associated RTI reporting to happen at month 12. This applies only to limited categories of visitors.

A company needs to make an application to operate a scheme, then report, calculate and pay the appropriate tax by 31 May, following the end of the tax year. The calculations need to take account of all employment income received, including bonus payments and equity-based incentives.

The Appendix 8 arrangement only applies to an STBV whose UK workdays in the UK tax year do not exceed 60 workdays, allowing certain days of incidental work to be excluded from this count. If the STBV triggers a UK tax liability and they do not meet the terms of the Appendix 8 agreement, the STBV should be included on the normal (monthly) PAYE scheme.

Category 3: Employees For Whom The UK Business Functions As The ‘Economic Employer’

Category 2: Employees Of An Overseas Branch Of A UK Business

It is relatively well known in global mobility circles that one of the conditions of the employment articles of DTAs that has to be met for exemption from UK tax, is that an

As well as the requirement for an employee to have a non-resident employer, there is also the requirement that the employee is ‘paid by and on behalf of a non-resident employer’. In other words, for the relevant condition of the employment article of the DTA to be met:

1. A UK business should not ultimately bear the costs of the STBV’s remuneration – by direct payment of or recharge from the overseas legal employer, and

2. The UK business should not function as the ‘economic employer’ of the STBV even in the absence of direct payment or recharge of the employee’s remuneration. If the UK does not pay the direct remuneration or bear the ultimate cost of the remuneration via a recharge, a further analysis is required as to whether the STBV is nonetheless ‘integrated’ into the UK business and whether the benefits and risks of that STBV’s work sits with the UK business. Also, regardless of whether costs were born by the UK company, should they have been under Transfer Pricing principles.

A number of years ago, HMRC published a non-legally binding concession that they would not pursue the ‘economic employer’ point, where employees were present in the UK for fewer than 60 days (workdays or non-workdays) in any substantive period (generally taken to be any 12 month period), but issued examples to indicate that they would disallow the concession in the case of employees integrated into a UK business or where there were repeat visitors to the UK of close to 60 days per 12 month period.

Whilst STBVs who are considered to have a UK economic employer can in principle be included on an Appendix 8 arrangement, if they are present in the UK for more than 60 workdays, PAYE would need to be operated on a monthly basis on a normal payroll.

Summary

In a fast-paced commercial environment, it can be easy to lose track of some of the many UK obligations relating to STBVs. But sadly, mistakes can be costly. We have worked to assist many organisations that entered themselves into STBVA arrangements without setting up appropriately robust means of tracking their international travel, and who did so without an appreciation of the nuances of the rules as to whom can be included on an STBVA and whom cannot. After the relatively quite years of the pandemic, companies can expect to see a return to HMRC employer compliance activity in this area.

Our specialist Global Employer Services team can work with you to review the position for STBVs, resolve any outstanding issues and help you put procedures and policies in place to underpin your compliance processes going forward. Our cutting-edge technology can aid the tracking and identification of tax issues in relation to your STBVs. Through our international network we can also provide guidance on the tax and social security implications in the jurisdiction of tax residency and advice on the tax and social security of STBVs to overseas jurisdictions. The UK is not alone in keeping a close eye on company compliance in this area.

Andy Kelly

Andy Kelly is a Partner in Global Employer Services at BDO LLP. He has over 20 years’ experience in the field of expatriate taxation and supporting companies on global mobility tax, social security and the formulation of their policies. BDO can provide global assistance for employment related issues and matters arising from international assignments. If you would like to discuss any of the issues raised in this article or any other expatriate tax matters, please do not hesitate to contact Andy Kelly on +44 (0) 20 7893 2444, email Andrew.kelly@bdo.co.uk or Andrew Bailey on +44 (0) 20 7893 2946, email Andrew.bailey@bdo.co.uk