HM Treasury announce possible consultation on reform to the short term business visitor PAYE rules

Thu 21 Dec 2017

On 6 December 2017 HM Treasury issued a paper on its strategy for enhancing the UK’s share of fund domicile in the asset management sector.  Included in that document is a commitment to come to a view in Spring 2018 on whether to consult on changes to the ‘short term business visitor’ PAYE rules, to cater for visitors to the UK who are foreign employees of the foreign branch of a UK company.

Background

The strategy paper notes that there is a difference in the tax treatment of short term business visitors. Short term business visitors to the UK from the foreign branch of a UK company are taxed on their earnings for their time spent in the UK.  However, short term business visitors to the UK from an overseas subsidiary of a UK company are generally exempt under the UK’s double tax treaty network.

This difference in treatment arises due to the wording of the double taxation treaties. Whilst the wording of individual treaties can vary, generally an exemption is not available where an individual is employed by a UK Company.  As branches are not considered to be a separate legal entity, where an individual is employed by a foreign branch they are effectively deemed to be employed by the underlying UK Company (i.e. the branch is a look through for employment purposes).  As a result, relief under the treaty is not available.

HMRC sought to address this imbalance over recent years by introducing a simplified annual PAYE reporting system for individuals who do not meet the treaty conditions (see PAYE81950).  The conditions for its use mean that access to the simplified arrangement is limited.  Whilst it can, in some situations, lead to reduced administration, PAYE still applies in these cases and therefore, a review of the rules in this area would be very welcome.

It is important to note that even in the scenario where treaty conditions are met, employers need to request permission from HMRC to exclude the earnings of short term business visitors from PAYE reporting. The procedure is set out in HMRC manuals at PAYE82000.  It only applies where the individual is (i) resident in a country with which the UK has a Double Taxation Agreement, (ii) stays in the UK for 183 days or less in any 12 month period, and (iii) will work for a UK employer (a UK company or UK permanent establishment of a foreign entity) whilst in the UK.

The paper’s comments more generally

The paper comments that the UK is the largest centre for asset management in Europe and the second largest in the world (after the US). Its long term approach to this sector is to maintain and build on this position as the UK withdraws from the European Union.  The document indicates a commitment to delivering a stable and responsive tax and regulatory environment that is proportionate to risks and responsive to new innovations.

To discuss tax issues concerning short term business visitors to the UK from other parts of the worldwide group, please get in touch with a member of the Mazars employment tax team.  To discuss tax issues affecting the UK asset management sector, please get in touch with Stephen Brown or a member of the Mazars tax team.