What are the challenges?
Many UK-based organisations have employed seconded UK nationals in Sierra Leone, Liberia, Senegal and other countries affected by the Ebola virus. These employers have either repatriated their workers on a temporary basis back to the UK, or are in the process of doing so.
The primary concern of employers will naturally be the welfare of their employees. However, when employees are no longer under threat and are back in the UK, one of the key challenges is dealing with their tax and social security issues.
Evacuating the overseas host territory
When employees leave a host territory overseas which is affected by Ebola (and especially if this is done in a hurry), it may be easy to overlook employer compliance obligations, in order to avoid potential compliance failures or future issues it is important that you ensure that the appropriate actions are taken:
- Tax departure formalities should be completed by the departing employee. Depending on the territory concerned, this will normally require the employee completing a departure form and/or attending a local tax office to register their departure.
- You should verify that the employee will become non-resident in the territory they are departing. If the employee remains resident under the host territories local tax rules, it is possible that they will still be subject to tax (and possibly withholding) in respect of any duties that they perform in the UK (or anywhere else in the world).
- Where required, you should verify whether any tax returns in the host territory are required by their employees. Just because an employee has left a territory, it does not mean that your individual compliance obligations will cease. You will want to avoid the situation whereby the employee returns to the host territory in future, only to find that they are being pursued by the tax authorities for the non-filing of tax returns and underpaid tax.
- From a wider HR perspective, you should consider whether new contractual arrangements are required to cover the employee’s new role outside the host territory. For example, certain assignment related benefits may no longer be appropriate.
Taking action will help prevent future issue and potential financial penalties. The risk is real. In Sierra Leone, for example, we have seen an increase in the number of employer tax enquiries in respect of expatriate employees. In some cases, these have led to substantial underpayments and penalties. It can’t be assumed that compliance obligations are no longer an issue, simply because the employee has had to leave the host territory.
What happens when employees return to the UK?
Sorting any compliance obligations in the host territory is only one half of the story. When employees return to the UK, there are also PAYE and National Insurance considerations.
The key point is that you should review the tax position of the employees and ensure that PAYE and NIC is operated correctly. It should not be assumed, for example, that no PAYE and NIC is due because the employee is only working in the UK for a short time before being re-deployed elsewhere overseas.
The exact tax and social security treatment for employees will depend on the specific circumstances. However, we highlight below some key points.
- If the employee returns to the UK but remains non-UK resident, then any days worked in the UK by the employee are still likely to be liable to UK tax (and therefore subject to PAYE). This applies even where the employment income is paid from a non-UK payroll and the employee is in the UK for a short-time awaiting redeployment.
- Where the employee is employed overseas under a UK contract of employment, NIC is also likely to be required on all employment income for the duration of the work in the UK. Even if the employee is then redeployed, it is possible that the NIC obligation may continue for a period of up to 52 weeks from the date that the employee first returned to the UK.
- Where the employee works under a non-UK contract and continues to perform duties in the UK on behalf of the non-UK employer, it may be possible to exempt any duties from UK tax where there is a double tax treaty with the former host country. The UK has a double tax treaty with Sierra Leone but does not have a treaty with Liberia, Senegal or most of the other affected countries. Even where it is possible to exempt employees from PAYE, reporting is still likely to be required in respect of the UK duties and the employer may need to obtain a Short Term Business Visitors Agreement from HMRC.
- If an exemption from UK tax under a double tax treaty is not possible, only where the duties of a non-resident in the UK can be shown to be ‘incidental’ to their non-UK work can PAYE reporting obligations be relaxed. There is no statutory definition of ‘incidental duties’ but these are generally duties such as training and general catch-up meetings which do not form part of the employee’s normal role and are of secondary importance to their normal role.
- If the employee established residence in the UK under the Statutory Residence Test, then PAYE will almost certainly be required where the individual is working for the UK organisation (even where they remain legally employed outside the UK).