UK employment taxes: a guide for non-uk based technology companies Employer s support Technology PRECISE. PROVEN. PERFORMANCE.
UK employment taxes: a guide for non-uk based technology companies When setting up operations in the UK, overseas-based companies need to make sure they understand the employment tax implications. Tax liabilities and reporting obligations often arise from day one, so advance planning is essential. This guide sets out some key employment tax topics, and a few related non-tax issues that non-uk technology companies need to consider. Establishing a payroll presence in the UK A vital first step is to determine whether the business has a payroll tax presence in the UK and so has to comply with Pay As You Earn (PAYE) and National Insurance Contribution (NIC) requirements in relation to UK employees salaries. A company s liability to operate a PAYE payroll scheme and pay employers NICs will depend on whether the company has a UK tax presence. Whether a company has a UK tax presence is often determined by the double tax treaty between the two countries, through the concept of a permanent establishment. Certainly, if an overseas company has a branch, an agency or a representative office in the UK, HMRC regards this as establishing a tax presence. However, workers based at home can create a tax presence in the UK as well and so it is always recommended that advice is sought whenever an overseas employee is hired. Where HMRC consider a permanent establishment to have been created, they will require the company to operate PAYE and collect NICs, even if payments to UK employees are made from outside the UK. Note that even if a company has no tax presence in the UK, some reporting obligations may still arise. Operating a UK payroll under Real Time Information (RTI) Technology companies complying with PAYE and NIC regulations are required to report to HMRC under the tax authority s Real Time Information (RTI) system. This means that employers must inform HMRC of PAYE and NIC liabilities at the time that any payments are made as part of the payroll process. Key steps in complying with RTI requirements are as follows: register the PAYE scheme with HMRC; obtain a P45 form from new employees or obtain personal information (such as date of birth, address) in the company s own new starters form; an online submission must be filed with HMRC on or before the date employees are paid, providing details of the employees, their pay and deductions; PAYE and NIC liabilities must be paid by the 19 or 22 of the following month, depending on the payment method; a year-end form (P60) must be given to each employee by 31 May following the end of the tax year; failing to file or submit required information on time can result in strict penalties being imposed by HMRC. Benefits and expenses reporting Where the company provides employee benefits and pays for (or reimburses) certain expenses, statutory filing requirements arise. In particular, employers must complete a P11D form for each relevant employee. P11D key facts A P11D is a statutory form detailing the value of expenses paid to employees and the cash equivalent of certain benefits received during the tax year. Common reportable benefits include health insurance, dental cover, gym membership, company car, car fuel and beneficial loans. Reportable expenses include items such as travel and business entertaining. Currently these will need to be reported in full unless a dispensation is held, but new rules will apply here from April 2016 so that employers only need report expenses where full tax relief is not available. Employers must file P11Ds with HMRC (and also give employees a copy) by 6 July. Penalties can be imposed for late filing. Employers must also file a form P11D(b) by 6 July, which details the total value of expense and benefits with the resulting class 1A liability. Employers pay Class 1A NICs on benefits by 22 July (or 19 July if by cheque). 2 Employer s support Technology
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From 6 April 2016, a new statutory framework will enable employers to deduct tax due on certain benefits-in-kind through the payroll. This will be possible initially for cars, car fuel, private medical cover and subscriptions. Employers will need to register for this scheme. Share schemes Employee share schemes can be valuable and tax-efficient tools for retaining, motivating and rewarding employees, and are prevalent in the tech market. There are a number of tax-approved efficient schemes in the UK that offer favourable tax treatments and sub-plans for UK employees can be set up to take advantage of these, even where the company is based overseas. Even where you have a tax efficient scheme in your own country this will not necessarily apply to overseas employees and careful planning is required where share schemes are being considered for overseas employees. Tax approved schemes in the UK Enterprise Management Incentive (EMI) scheme Company Share Option Plan (CSOP) Save As You Earn (SAYE) schemes Share Incentive Plan (SIP) Employee shareholder scheme Technology companies operating employee share schemes are required by HMRC to file in-year returns, and an annual return by 6 July following the tax year. They are required to report (via an online reporting service) events such as share awards, grants exercised and stock options whether through a tax approved or unapproved scheme. International transfer of staff As the technology business in the UK expands, it may be necessary to assign more senior staff to the UK for a period of time. The lack of coherence between international tax rules means that tax liabilities can sometimes arise both at home and overseas for both company and employee. A number of questions should be addressed: How do home and host country rules interact? Is there a risk of double taxation? Which payroll will employees be paid from? Does the business have an obligation to report earnings and withhold tax and social security contributions? How are benefits and travel expenses treated? Employers need to ensure they plan international assignments carefully, paying attention to tax compliance, social security obligations, and employer and employee filing obligations. Pensions auto-enrolment Like all employers, technology companies are legally required to enrol eligible UK employees into a workplace pension scheme, with contributions being made by both the employee and the employer. Every employer has a staging date by which the scheme must be up and running, and faces fines for not complying. As well as choosing an appropriate pension scheme, employers need to assess the workforce to determine who is eligible. It may not be necessary to enrol all personnel, although some employees will have the right to opt in. For example, employers must automatically enrol employees aged from 22 to state pension age who earn over 833 per month while employees on the same rate but aged 16-21 have a right to opt in. Employer s support Technology 5
Contractors There are good reasons why technology companies make widespread use of contractors. A genuine contractor, whether acting as a self-employed individual or supplying services through a limited company, does not need to be brought onto the payroll, thus saving the firm PAYE and national insurance contribution (NIC) costs. Bringing in a contractor rather than recruiting another UK employee therefore seems attractive on paper. But beware: your contractor could be deemed an employee after all, triggering an unwelcome tax bill. There are various tests that HMRC currently use to determine the employment status of contractors and these should be considered by a technology company in advance of the engagement to determine any potential payroll obligations. Non-tax issues Technology companies setting up in the UK should also consider a number of employment-related, non-tax questions. These include: Do individual employees have the right to work in the UK? For example, do they have any necessary visas in place? Have appropriate employment contracts been drawn up for all UK employees? Is the UK business complying with all minimum wage requirements specifically, the national minimum wage and (from April 2016) the national living wage? 6 Employer s support Technology
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