Payroll for UK employees going to work overseas and offshore remote workers

Tax Question

We are frequently asked to advise on the Income Tax and National Insurance treatment of UK employees who are being sent to work overseas, and employees who will work remotely from an offshore location. The position will differ depending on whether the employee is resident in the UK for the tax year and where the duties of employment are performed.

Tax Answer

Income Tax

Residence position is determined with reference to the Statutory Residence Test.

The default position for UK resident individuals is that they are taxed on the basis of their worldwide income, so an employee who is a UK resident for the tax year will be taxed on all earnings from a UK employer, even if some duties are performed overseas.

If the employee is not a UK resident for the tax year, only earnings that relate to duties performed in the UK will be subject to UK tax. This means that an employee who is not a resident and works wholly outside the UK, such as a remote worker, will not be liable to UK tax on any of their income from UK employment. Likewise, a UK employee who works overseas for most of the tax year should be entitled to up to full relief from UK tax.

National Insurance

UK employees who have historically been residents of the UK and paid National Insurance may still need to do so even if they are working overseas.

Employees going to work in an EU country, Gibraltar, Iceland, Liechtenstein, Norway, Switzerland, or a country outside the EU with which the UK has a Reciprocal Agreement, will usually only pay social security contributions for the country they work in.

However, in both cases, if certain conditions are met or the posting is temporary, the employee or employer can request that National Insurance Contributions continue instead. The application is made to HMRC, and if successful, HMRC will issue a certificate of coverage (PDA1) or a certificate of continuing liability.

Employees going to work in any other country will normally continue to pay UK National Insurance for the first 52 weeks they are overseas.

Overseas employees who are not and have never been UK residents and who will be working wholly overseas have no liability to National Insurance, and therefore no contributions are required.

Further details on these points can be found in HMRC’s guidance below.

RDRM10425 – Residence: Liability to UK Tax: Scope of liability to income tax on earnings – HMRC internal manual – GOV.UK (www.gov.uk)

Employees working abroad – GOV.UK (www.gov.uk)

Tell HMRC if you’re sending employees to work abroad (CA3821) – GOV.UK (www.gov.uk)

Paying National Insurance if you’re going to work in the EU, Gibraltar, Iceland, Liechtenstein, Norway, or Switzerland – GOV.UK (www.gov.uk)

2022 to 2023: Employer further guide to PAYE and National Insurance contributions – GOV.UK (www.gov.uk)