New employment tax guidance for overseas workers – but the rules are still complicated
May 2011
Charities and aid agencies sending workers abroad have to pay close attention to the tax rules surrounding the treatment of overseas workers.
Individuals are treated by HMRC as non resident for tax purposes (in other words they are not liable for UK tax [1]from the day after they leave the UK, provided they can show they:
- left the UK to go abroad permanently or the absence and full-time work abroad lasts at least the whole tax year; and
- their visits to the UK are less than 183 days in a tax year and average less than 91 days a tax year over a maximum of four consecutive years.
The same applies to their spouses, civil partners or partners.
[2]
While the meaning of full-time employment and the number of days the employee can return to the UK are clear from the rules, the problem has been that the actual number of work days the employee can have in the UK without infringing the rules has not been clear.
HMRC has issued new guidance, which will be incorporate into the Residence, Domicile and the Remittance Basis (see note 2) where it states that it “will generally accept that working in the UK for less than ten days in a year will not prevent an individual claiming they made a break with the UK.”
Employees (and it is advisable for charities to help them with this) will be required to document evidence that they are working full-time overseas.
However, while the guidance refers to ten ‘work-days’ the days which are simply incidental to UK duties are considered to be performed abroad and thus do not use up any of the ten-day allowance.
[3] HMRC defines what it means by ‘incidental duties in the guidance’ and gives the following examples:
Incidental work
- Time spent in the UK by an overseas sales representative of a UK company to make reports or receive fresh instructions
- A short period of time spent training in the UK by an overseas employee, provided that no productive work is carried out in the UK by the trainee.
Charity employers and employees must not forget that having fewer than ten substantive days working the UK is not the same as the individual not being liable to UK taxation on earnings related to those days. Whilst the individual may have a personal allowance, this might be used else where and could therefore results in chargeable income.
David Daly, Head of Employment Tax and Advisory Services at Crowe Clark Whitehill told Caritas: "HMRC clarification on this issue is welcomed, however, the benchmark of 10 days is rather low. Charities with employees overseas who need to return to the UK from time to time to carry out duties here will need to manage the process well to ensure they don't disturb the employees tax exempt status".
[1] They are likely to be liable to tax in the country in which they carry out their duties.
Author: Clarissa Dann
Clarissa Dann was the editor of Caritas as well as an HR and management online service,he People Bulletin until July 2011.
She is now the editor of the specialist trade finance magazine, Trade and Forfaiting Review which can be viewed at www.tfreview.com but does write on charity finance and investment from time to time.
Clarissa has a background in legal and professional publishing, as well as business journalism and holds an MBA from Cass Business School. She has been one of the judges for the non-profit category of the Chartered Institute of Marketing's Excellence in Marketing Awards for the second year running.
She has also acted as clerk to the trustees of a small almshouses charity and as a member nominated trustee to a pension scheme of a multinational publishing company.
Click here for other articles written by Clarissa Dann
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