Income tax for employees working abroad
Tax liability depends on the time in which the employee will continue to work outside of the UK. If the employee is contracted to work overseas full-time for at least a year, they will not be treated as a resident. What’s more, they will also not be considered a resident in the UK, meaning they will not be subject to tax on their overseas earnings if the following conditions apply:
- The employee works abroad and remains living outside of the UK for an entire tax year.
- Should the employee visit the UK, they should not visit for more than 91 days per tax year
P85 for employees working abroad
When your employee leaves the UK, it is important that they fill in a P85 form, which you can download via the HMRC website. Once submitted, the employee’s PAYE code is set to NT. This will ensure that they can receive their salary without a deduction of UK income tax. However, the employee may be liable for paying income tax in their country of residence. It would be advisable that you receive local tax advice specific to that country.
National Insurance and working abroad
If the employee has been living and working for you in the UK before moving abroad, there will be national insurance liabilities for 52 weeks after moving away. Therefore, both you and your employee will have to pay class 1 NICs for 52 weeks while the employee works abroad. However, there may be a reciprocal agreement for social security contributions between the UK and your employee’s country of residence. This will determine where social security contributions should be paid.
If the employee is residing in an EEA country or a country with a reciprocal agreement with the UK, you as the employer should complete HMRC forms CA 3821 and CA3822.
The employee may benefit from continuing to contribute to a UK national insurance fund. This will ensure that their rights to certain benefits and/or state pension are not reduced.
After the 52 weeks, the employee can continue to pay UK national insurance in the form of 2 class contributions. If the employee wishes to get as much as they possibly can from the UK state pension, they should check whether they are likely to receive this based on their UK earnings.
How We Can Help You.
We can help you complete the necessary HMRC forms when your employee goes to work abroad, so please get in touch with F&C today.