Just Visiting? Maintaining Payroll Tax Compliance Around Business Visitors
Jan 17, 2017
How many visitors do your business premises receive, and where are they all from?
On its face , that might seem like an ordinary question a guest might ask of your reception desk team. In reality, though, it be a question posed by your local tax office.
The trend to globalization has increased steadily over the years, and with it so has the need for personnel to travel outside of their home country. Many businesses have well defined policies covering those on planned secondments, but those policies may not cover those on short business trips.
With the advent of 'hot-desking' it can sometimes be difficult to keep track of the movements of colleagues in-office, let alone those jetting in from other countries. Yet careful consideration should always be given to the potential tax position of foreign business visitors.
My last article explained how even non tax residents of a country could be liable for tax in a country that they visit for work purposes. We also noted that this obligation may be eliminated through the operation of a Double Taxation Agreement (DTA) that has been negotiated between home and host country.
The DTA must include an article that covers Dependent Personal Services (employment income), as this article will allow for income paid to a non resident to be taxed in their home country provided that the following three conditions are met:
- The recipient must be present in the UK for no more than 183 days in any 12 month period (or fiscal year – see individual agreements); AND
- The remuneration is not paid on behalf of an employer who is resident in the UK; AND
- The remuneration is not ultimately borne by a fixed base or permanent establishment that the employer has in the UK
There may be ultimate relief available by the operation of the DTA, but local rules often place an obligation on either the direct employer or a locally based “host” employer to operate the local tax withholding scheme.
A host employer is often the company within a global group that has a physical presence in the visited country. The comprehensive rules, which are designed to ensure that as many businesses as possible have to operate a local withholding scheme, will often trap business visitors, compel the local subsidiary to operate local withholding, and then require the submission of a local tax return to claim the relief available via the DTA.
All of which amounts to a lot of work for both employer and tax office, for a result that yields a “nil” local liability.
Understanding Exemption Schemes
To counteract this, many countries offer schemes that allow the host employer to formally claim an exemption from the local withholding scheme provided the conditions spelled out in the DTA have been met. One of the most detailed schemes is offered by the UK’s tax authority, Her Majesty’s Revenue & Customs (HMRC).
If all three criteria laid down in the relevant DTA are met by the visitor then HMRC will allow PAYE to be suspended through the operation of the Short Term Business Visitor scheme, often referred to as EPAPP4. (The formal rules of the scheme can be found here.)
It is important to note that employers cannot simply start operating the scheme without reference to HMRC. A written request must be submitted detailing how the employer intends to meet the scheme requirements.
The scheme requires employers to keep records of all visitors that enter the UK and categorises visitors into four groups dependent on the number of days of presence they accrue in the UK. The four groups are:
I. 1-60 days presence
There are no formal reporting requirements for this group, but the employer should retain internal records of:
- Full name of employee
- UK and overseas address
- Date commenced and ceased in UK
- Nature of duties undertaken
II. 61-90 days presence
Provided that there is no formal contract of employment with a UK employer, PAYE can also be ignored for this group. The records kept for the first group should also be maintained, and an annual report reporting all the collected data should be submitted to HMRC by May 31st following the end of the relevant tax year, together with a statement formally confirming that the UK host company does not function as the visitors employer, and has not had any of the remuneration charged to them. There should also be confirmation of which country a tax return is being submitted to of worldwide income.
III. 91-150 days presence
All visitors in this category must also be reported to HMRC providing all of the information for the previous group as well as a formal statement from the overseas revenue authority confirming residence there for tax purposes.
IV. 151-183 days presence
This group must be reported to HMRC as soon as it becomes obvious that they will exceed 150 days of presence in the UK. The report consists of all of the information gathered for the 91-150 day group, but must also contain formal confirmation from the employee that the details are correct.
All visits within the UK tax year must be amalgamated together when working out which group a visitor falls under. The longer an individual is present in the UK, the more information is required to prove that the exemption available under a DTA does apply to the visitor.
In order to be given permission to operate the scheme employers must be able to satisfy HMRC that they have a sufficiently robust internal system that will capture all days of presence in the UK. Furthermore the scheme must be controlled by a central point with whom HMRC may ultimately deal with regarding its operation. It must also compel all employees covered by it to periodically report to the central control point at least once every 30 days whilst they are in the UK.
This condition can set a real challenge for your business. Accounting for the physical UK presence of visitors is often not what company systems are geared up to do. Some suggestions as to how this might be achieved include:
- Using existing time and attendance or client billing systems to capture presence
- Extracting travel information from central travel booking facilities
- Using swipe card system to identify entry and exit to company premises
- Asking IT departments for log-on information regarding access to UK email, extranet or company phone systems
- Maintaining manual visitor registers
- Issuing tax diaries to all visitors requiring regular submission to the central control point
One area where most of the above methods might miss presence is recording holiday and weekend days. All days must be recorded, including presence of just a few hours. You should carefully consider the system that you propose to use, as HMRC may reject any applications that they consider are not robust enough.
Remuneration Charges: Key Examples
The second major area where employers sometimes fall foul of the scheme rules is that concerning the bearing of remuneration charges by the UK Company. This rule means that it is not possible to pass the salary charge back here, even by inter-company journal. However, it may be possible for the UK Company to be billed for services provided to it by the overseas company.
- Jean-Paul is sent by Asterix SA (a French company) to conduct a software installation at Asterix Ltd (a UK company in the same group). The installation takes 10 weeks and at the end of it Asterix SA send via inter company charging a cost to Asterix Ltd equivalent to Jean-Paul’s gross salary, plus social insurance contribution plus an additional charge of 10% of salary to cover other overheads. EPAPP4 cannot be used and Jean-Paul will need to be subject to UK PAYE on the salary earned during the 10 week installation.
- Michel is sent by Asterix SA to install a new air-conditioning unit at Asterix Ltd. Asterix SA charge the UK Company a fixed price of €15,000 for the job which includes the supply of goods and fitting cost. The €15,000 charge makes no direct reference to Michel’s salary and remains the same regardless of the time on site or if one of Michel’s colleagues (who earn a differing salary) is sent as a substitute. EPAPP4 can be used and Michel continues to pay tax on the salary he earns during the installation in France.
What EPAPP4 is doing is allowing the employer to bring forward a claim for UK tax relief under the DTA that would otherwise have to be made using a self assessment tax return potentially many months after the salary was initially paid. The scheme may therefore only be applied to visitors coming to the UK from countries with whom the UK has a comprehensive DTA.
For those who come from a non agreement country then the scheme may not be used and operating PAYE must be done on salary paid for substantive duties performed in the UK.
'Assignee Release' & Other Schemes
The UK EPAPP4 scheme is certainly one of the most comprehensive, but is by no means unique within the world. Other countries operate similar schemes; the following provide some examples:
- Republic of Ireland Temporary Assignee Release Scheme. Requires all visitors who will accrue more than 60 working days of presence in the state to be reported to the tax office within 212 days of arrival
- Japan – Form 7. Requires the host to submit a formal claim for DTA protection to the National Tax Agency. Form must be approved before first payment of wages to the visitor in Japan
- New Zealand – application to the Non Resident Contractors team at Inland Revenue to issue an exemption certificate confirming DTA relief applies
The task of monitoring and maintaining these records is often unpopular within a business, but it is a crucial payroll activity. Adherence to any scheme designed to facilitate an exemption from onerous withholding requirements has got to be good news for any payroll department, and it is in our best interests that such schemes are maintained and managed effectively.
Global payroll professionals will certainly be responsible for the fallout should the local revenue office decide the rules of any scheme have been breached. Ask your company the following questions:
- Have we sent anyone on a last minute business trip abroad?
- Have we ever extended a trip because a project has over-run?
- Do our visitors go to associated or subsidiary companies within our group or the overseas branch of our home company?
- Do we monitor visits within the EEA given that immigration rules allow for the free movement of people and require no formal permission?
Accidental expatriates are often created when line managers wish to respond swiftly to a business imperative, and who have little or no understanding of the issues involved. Spreading the message about the risk to the business in terms of non compliance with local taxation, social security and immigration rules is therefore an important consideration for anyone running a short term business visitor scheme.
It may not currently be on your list of responsibilities, but owning and running the scheme can be a key method in ensuring compliance in this complex area.