As international business and trade continues to grow, employee mobilizations to previously “unreachable” corners of the globe have become, in some cases, commonplace.
International growth and the expansion of an organization’s global footprint, while undoubtedly an opportunity as well as an attractive and alluring proposition, also include potential challenges from an employment tax perspective.
One seemingly innocuous category of an “internationally mobile employee” can, if not managed correctly, result in the greatest risk or exposure to an organization, and that is the short-term business traveler or visitor.
It is not uncommon for an organization not to consider business travelers or visitors as “internationally mobile employees” simply because a short business trip is considered to be exactly that—and not an international “mobilization.”
However, the reality is that an employee who travels frequently (or even infrequently) to different international jurisdictions for short business trips can very easily create income tax liabilities and withholding, reporting, and remittance obligations in those overseas jurisdictions for their employer.
General Considerations for All International Business Travelers
Implementing robust internal processes is critical for any organization to effectively manage their international business traveler population. These internal processes place responsibility on key stakeholders within the organization—in addition to the business traveler. Relying upon clear communication channels to educate stakeholders is of paramount importance.
As noted above, each international jurisdiction will have its own regulations and accepted practice with respect to the information employers must gather and retain and the level and content of any required reporting in that location. In general terms, however, the following information, though not comprehensive, is likely to be required:
- Personal details for each individual in question (full name, date of birth, etc.)
- Nationality and country of residence
- The number of days of presence in any overseas location (ideally split between work and non-work days) with as much supporting documentation (flight tickets, etc.) as possible. It is common for the statutory authorities to request details of each separate trip.
- The purpose of the trip and the duties undertaken
The above provides a flavour of the quantum and context of the data that an employer may have to gather, review, manage, and ultimately provide for reporting their business traveler population to any overseas tax authority.
The fundamental and underlying message is that there is legislation and accepted practice in terms of income tax liabilities and obligations with respect to this population in most international jurisdictions. Therefore, employers and individuals alike need to be aware of the legislation, regulations, and accepted practice to ensure no employment tax risk or exposure exists for either party.
What follows is a closer look at how short-term business travelers are addressed in the United Kingdom (U.K.). While the regulations and practices are unique to the U.K., the practices can help payroll leaders make sure the right questions are being asked for their payroll around the world.
Her Majesty’s Revenue and Customs Regulations
In the U.K., income tax authorities have specific regulations and practices in relation to short-term business travelers from overseas. Indeed, Her Majesty's Revenue and Customs (HM Revenue and Customs or HMRC)—a non-ministerial department of the U.K. Government responsible for the collection of taxes and the administration of other regulatory regimes including the national minimum wage—casts a very keen eye on individuals coming to work in the U.K. from overseas and the U.K. host “employer” of that individual.
The greatest focus of HMRC’s attention is on those individuals who are in the U.K. or its waters for short periods of time, whether that be for a short-term formal secondment, or a looser business trip type of arrangement.
As with many other jurisdictions, a liability for U.K. income tax may ultimately be avoided when an individual from overseas visits the U.K. and all of the conditions of the relevant article of the appropriate double tax treaty between the individual’s country of residence and the U.K. (assuming a treaty exists) are met.
However, many U.K. resident employers are unaware that a U.K. Pay As You Earn (PAYE) obligation and liability may be triggered for the U.K. business, even when the employee’s visit to the U.K. is for a short period.
If a PAYE obligation is triggered, the U.K. employer is required to calculate, withhold, report, and remit U.K. PAYE to the U.K. tax authorities (HMRC) for any individual from overseas who works in the U.K. for more than 30 days during a U.K. tax year.
This is the case irrespective of whether the employer or the employee is certain that an ultimate U.K. tax liability could be avoided by virtue of a double tax treaty as noted above. In the first instance, the U.K. PAYE should be paid over, and then a U.K. self-assessment tax return could then be prepared by the individual at the end of the U.K. tax year to reclaim the PAYE paid if it turns out that a treaty exemption was indeed available.
Short Term Business Visitor Arrangement
Thankfully, there is a way to avoid this strict PAYE withholding obligation that exists in the U.K., and that is to apply for a Short Term Business Visitor (STBV) Arrangement from the U.K. tax authorities (HMRC).
Essentially, a STBV arrangement reduces the PAYE administration for HMRC by removing the requirement for the U.K. resident employer to apply PAYE to individuals who will ultimately not have a tax liability to the U.K., providing certain conditions are met and specific reporting and tracking processes are implemented and followed.
If an STBV application is approved by HMRC, the U.K. company does not need to calculate, withhold, report, and remit U.K. PAYE in respect of any short-term business visitors or short-term assignees who fall within the conditions specified by HMRC. Instead, the only requirement would be to file an annual report to HMRC no later than 31 May following the end of the relevant tax year detailing all individuals requiring coverage under this arrangement.
HMRC is continually reviewing and updating the conditions necessary for an individual to be included within a STBV arrangement. Recent changes mean HMRC is taking a much stricter approach to the operation of a PAYE where a STBV arrangement is not held.
Therefore, specific guidance should always be sought in relation to the suitability of an STBV application as a mechanism to remove the requirement to operate PAYE in respect to individuals from overseas.
Generally, an STBV arrangement must only be applied where individuals are:
- Residents in a country with which the U.K. has a double tax agreement under which the dependent personal services/income from employment article within the treaty is likely to be competent
- Coming to work in the U.K. for a U.K. company or the U.K. branch of an overseas company or are legally employed by a U.K. resident employer, but economically employed by a separate non-resident entity
- Expected to stay in the U.K. for 183 days or less in any 12-month period
There are specific rules in place for individuals who spend fewer than a total of 60 days in the U.K. during a U.K. tax year (“the 60-day rule”). The 60-day rule may allow individuals to be included in an STBV arrangement even if not all of the conditions of the dependent services article of the relevant double tax treaty are met. Again, professional advice should be sought as to whether any employee can be covered by the 60-day rule.
STBV Reporting Requirements
If an STBV arrangement is applied for and subsequently approved by HMRC, the level of detail required in the annual report depends on each individual’s days of presence in the U.K. during the tax year in question. Essentially, the greater number of days the individual spends in the U.K., the greater the reporting requirements (so more reporting is required for an individual falling within the “90 to 150 U.K. days of presence” category than the reporting required for an individual sitting within the “31 to 59 days of presence and covered by the 60-day rule” category).
However, in all cases the STBV arrangement is considerably less painful in administrative terms than having to calculate and remit PAYE only to then try to claim this money back from HMRC. Details of the specific reporting requirements depending on the level of days of presence in the U.K. are available from HMRC.
PAYE Special Arrangement for STBV
In an effort to continue to simplify the regulations, HMRC provided a further relaxation of the strict PAYE obligations for U.K. resident employers for short-term business travelers.
These regulations were effective 6 April 2016 and provide a relaxation of the strict PAYE requirements for overseas individuals who are unable to claim ultimate exemption from U.K. income tax by virtue of a double tax treaty and who are therefore unable to be included in an STBV arrangement.
The most common example would be individuals who are residents in a country with which the U.K. does not have a double tax treaty; however, other examples will exist.
Prior to the introduction of the Annual PAYE Scheme, U.K. resident employers were required to apply and operate PAYE in accordance with the strict deadlines set out in HMRC’s Real Time Information (RTI) legislation.
The Annual PAYE Scheme allows U.K. resident employers to calculate the U.K. PAYE liability arising for any individual whose workdays in the U.K. total 30 days or less during a U.K. tax year, at the end of the U.K. tax year rather than on a much more regular basis as required by RTI. This 30-day limit has recently been increased by HMRC from 30 to 60 days effective the beginning of the next U.K. tax year on 6 April 2019.
To clarify, this arrangement only applies to individuals whose workdays in the U.K. total less than 30 days in each U.K. tax year (soon to be 60), and this limit will not be relaxed in any circumstances.
If approved, HMRC will set up an annual PAYE scheme to account for the U.K. income tax liabilities arising on any individual included within the arrangement. The U.K. resident employer will be required to undertake RTI reporting in respect of any such individuals prior to 19 April following the end of the U.K. tax year concerned and settle the PAYE liability by the same date.
In conclusion, HMRC is watching closely how U.K. employers deal with the income tax liabilities and PAYE obligations for overseas employees spending time working in the U.K. However, the STBV arrangement, and to a lesser extent the recently introduced Annual PAYE Scheme, are two HMRC-driven tools for significant risk and exposure minimisation that any U.K. employer would be remiss to ignore!
An international organization with a business traveler population spending time in many different overseas jurisdictions must ensure that the specific rules and regulations, as well as accepted practice, existing in each overseas jurisdiction are known and ultimately adhered to, otherwise a significant risk and exposure to employment tax noncompliance may well exist.
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Graham McKechnie has more than 25 years of global mobility experience and heads up activpayroll’s Global Mobility Division (https://www.activpayroll.com). He is a qualified tax professional and a member of the Association of Tax Technicians (ATT). Earlier, McKechnie worked for HMRC for nearly 10 years, learning about the intricacies of taxation and specializing in expatriate taxation providing guidance, support, and advice to Fleet Street journalists. He then worked for The Royal Bank of Scotland as a Tax Manager in the Private Trust and Taxation department, advising major organizations upon their tax affairs. His expertise lies in managing clients’ internationally mobile employee population to deliver process, cost, and administration efficiencies together with employment tax guidance, support, and advice covering all areas within the global mobility arena including immigration, employment law, international benefits, income tax, social security, and payroll.