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When your employees go to work abroad you need to think about their potential liability to income tax and national insurance. But be careful because there are different rules for each.

Income tax

The tax liability will depend on how long the employee is to be working outside of the UK. If the employee is to work on a full time contract overseas for at least a year, he will be treated as not resident, and not ordinarily resident in the UK and not subject to UK tax on his overseas earnings, if both of the following conditions apply:

• Whole tax year - The employment abroad and the absence for the UK must last for a whole tax year. So to get the best out of these rules the employee should leave the UK shortly before 6 April (the start of the tax year), and not return permanently until after the following 5 April.
• Visits to the UK - While working abroad the employee can visit the UK but those visits should not exceed 182 days in total per tax year. Where the employee is abroad for more than a year the visits to the UK should average-out at less than 91 days per tax year since the date of departure from the UK. Although only a maximum period of four years is looked at for this averaging calculation. To be on the safe side restrict all visits the UK to less than 91 days per tax year.

Forms and PAYE: The employee should complete HMRC Form P85 upon departure. Employers can request that HMRC sets the employee’s PAYE code to "NT," allowing their salary to be paid without UK tax deductions. It is crucial to seek local tax advice to understand liabilities in the host country. When the employee returns to the UK, they should complete Form P86 to notify HMRC of their permanent return.

National Insurance

Liability Continuation: If the employee was employed in the UK before moving abroad, Class 1 National Insurance Contributions (NICs) must be paid by both the employer and employee for 52 weeks after departure.

Reciprocal Agreements: For employees working in an EEA country or a nation with a reciprocal social security agreement, the liability may shift to the host country. Employers should complete Forms CA3821 and CA3822 to confirm where contributions should be paid.

Voluntary Contributions: After the 52-week period, employees can choose to pay Class 2 NICs voluntarily. This can safeguard entitlement to certain benefits and the state pension. The employee should assess if these contributions are necessary to achieve the maximum state pension, which currently requires 30 years of contributions.

By carefully considering these rules, employers can ensure compliance while supporting their employees' needs during overseas assignments.

How We Can Help You

We can help you complete the necessary HMRC forms when your employee goes to work abroad, so please contact us.