New tax rules for short-term business visitors to UK proposed

STBVs are individuals who are not resident in the UK for tax purposes, but who make business trips to the UK.  When a STBV comes to the UK to work for a UK company, the company must operate PAYE on the individual’s earnings in the normal way.

An STBV will normally be required to pay tax in their home country on their worldwide income, including earnings taxed in the UK. Individuals can then usually make a claim to double tax relief if they are taxed on the same income in more than one country.

Currently, UK companies can apply to HMRC for permission to relax pay as you earn (PAYE) requirements for STBVs who usually work at overseas subsidiaries in territories with a double tax agreement (DTA) with the UK. This is called a short term business visitor arrangement (STBVA). It does not apply to employees that usually work at overseas branches of the UK company.

UK companies can opt to use a special PAYE administrative easement in respect of STBVs who are not entitled to an STBVA, such as those that usually work at overseas branches and those that work at overseas subsidiaries in territories that do not have a DTA with the UK in place. Where this special arrangement applies, the UK company can operate an annual PAYE scheme for qualifying STBVs and does not have to report to HMRC in real time. In addition, STBVs are not required to file a UK tax return in respect of these earnings.

However, PAYE is still applicable, albeit in a less strict manner, and the special arrangement can only be used in respect of STBVs who spend 30 workdays or fewer in the UK in any given tax year. In contrast, a STBV who is entitled to an STBVA can work in the UK for a much longer period, potentially up to 183 days in a 12-month period, while still benefitting from the arrangement.

The government announced its intention to consult on ways to improve the tax and administrative treatment of STBVs from overseas branches at this year's spring statement, in recognition of the fact that UK companies can face costs and administrative burdens in respect of STBVs arriving from overseas branches, but not STBVs arriving from overseas subsidiaries.

It has now put forward two potential policy options: extending the maximum number of days a STBV can work in the UK under the special PAYE arrangement from 30 to 60; or introducing a new tax exemption for STBVs from overseas branches which would operate in the same way as an STBVA.

The consultation deals solely with the STBV's liability for employment taxes and the way in which the UK business should account for the STBV's earnings while that person is working in the UK to HMRC. It does not consider the STBV or the UK company's potential liability for National Insurance contributions (NICs), to which separate exemptions may apply.

Employment tax expert Chris Thomas of Pinsent Masons, the law firm behind Out-Law.com, said that the consultation is "a welcome, if overdue, recognition of the disparity between employers who engage staff through a subsidiary and those who use a branch".

"There is not really any justification in policy terms for requiring employers to apply PAYE in cases where an employee is coming to the UK for a short period, just because that individual is engaged through a branch rather than a subsidiary: the underlying reality is still the same," he said.

"However, many employers will feel that the first option, extending the PAYE special arrangement rule, is tinkering around the edges of the issue, because whilst the extension of the relaxation to real time reporting is helpful, the fundamental point remains that PAYE still has to be applied and the playing field will not be levelled. The second option, extending the STBVA regime, is likely to be much preferable, and employers with short term business visitors should consider responding to that effect," he said.

Thomas said that it was "not surprising" that the government was not proposing any changes to the NICs treatment of STBVs. However, "the ongoing differences in the income tax and NICs systems remain a cause of frustration for many employers, especially where there is no reciprocal agreement in place and hence UK NICs could potentially apply where there is a UK employer", he said.

The consultation closes on 6 August 2018.