Income Tax for Employees Working Abroad

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Quick Facts

18th September 2019

  • The determination of automatic UK and non-UK residence is based on a statutory test. Determining Residence.

  • Under the statutory residence tests, a person is either UK resident or non-UK resident for a full tax year and at all times for that tax year. Splitting the Tax Year

  • Form P85 is used by HMRC to determine the individual’s likely tax residence status upon departure from the UK to work abroad. HMRC Notifications

  • Double taxation is where the same income can potentially be taxed twice. However, individual agreements normally mean one country will have the primary taxing rights over the income, and the other country will either give a tax exemption or allow a tax credit. Double Taxation

  • HMRC may allow provisional tax relief for double taxation through the employee’s PAYE tax code, where certain conditions are met. Foreign Tax Credits

  • Under a tax equalisation scheme the employer undertakes to meet on the employee’s behalf any additional tax payable above the tax that the employee would have paid in their “home” country, grossed-up if necessary, which arises on the total assignment income. Tax Equalisation Schemes

  • Tax protection schemes are voluntary arrangements whereby employers decide to protect employees from any additional taxes that have to be paid during an assignment, either in the UK or to the “host” country in which they are working. Tax Protection Schemes

  • Where the “remittance basis” of taxation applies, the liability to UK tax is only on the amount of the person’s foreign earnings that is remitted to the UK. Remittance Basis

Summary

This topic examines the challenges faced by employers operating an expatriate assignment programme in dealing with the personal tax liabilities of employees sent from the UK on an overseas assignment. There are a myriad of different international tax systems and an individual’s liability to income tax is determined by tax law and/or any relevant treaty agreement made between two countries.

In Practice

Being “resident” for tax purposes determines the amount of tax that an individual has to pay either in the UK, to an overseas authority or in some cases both.

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This topic examines the challenges faced by employers operating an expatriate assignment programme in dealing with the personal tax liabilities of employees sent from the UK on an overseas assignment. There are a myriad of different international tax systems and an individual’s liability to income tax is determined by tax law and/or any relevant treaty agreement made between two countries.

Quick Facts

In-depth