COMPLIANCE
If there’s no host employer to whom the PAYE obligation can be shifted, then it’s quite possible to have a situation where PAYE for tax collection doesn’t need to be operated (see the ‘ Non-resident employers and liability to PAYE in the UK ’ Tolley guidance note for further details, here: http://ow.ly/3zzP50MPgU9). So, where a remote worker stays in the UK, their foreign employer won’t have an obligation to withhold tax under a PAYE scheme if they don’t have tax presence in the UK. If there’s no tax withholding, the individual must file a self-assessment return, and this means forgoing access to the foreign earnings exemption. What about direct collection? HMRC has power to direct an employee to use direct collection as a method of tax withholding. However, such special arrangements don’t apply if the employer doesn’t agree to them and doesn’t proceed in accordance with the arrangement. Direct collection is therefore not an option for remote workers working in the UK without the permission or knowledge of their employers.
If an employer is willing to do so, it may be possible to ask HMRC to issue such a direction. This would potentially give the employee access to the foreign earnings exemption. However, given the complexity of withholding calculations and the necessity to ensure they’re done correctly to avoid too much tax being withheld, HMRC may be reluctant to issue a direction for the employee to withhold tax upon themselves. What can be done to make it simpler? The Office of Tax Simplification’s report on its consultation recognises that HMRC should improve guidance on when the direct collection of PAYE liabilities from employees of foreign employers with no place of business can be used. The report is available here: http:// ow.ly/2i8e50MPfX9. Expanding the scope of the foreign earnings exemption may help facilitate cross border working, so that: l it applies to more than £10,000, and l it can be claimed by a self assessment return if necessary, and
l it isn’t limited to ‘relevant foreign earnings’ based on location, but can be used to exempt earnings that relate to offshore duties (as evidenced and self-assessed). Additionally, the restriction to basic rate band taxpayers based on earnings on an arising basis could be removed. Although it will still need some definitions around ‘remote / UK duties’, it will reflect modern day working and help keep the UK globally competitive and attractive, while not increasing employer burden. n “If an excessive amount of income tax is deducted under pay as you earn during the tax year, there’s no mechanism for reclaiming the over-payment”
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| Professional in Payroll, Pensions and Reward |
Issue 88 | March 2023
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