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Tax Advice for Employers and Internationally Mobile Employees

Tax planning for Employers and Internationally Mobile Employees

Becoming an Internationally Mobile Employee is an exciting idea.  However, it means that you and your family have an opportunity to relocate to a new country, most probably a country where you had always wished to live and work.  This exciting idea sometimes soon becomes daunting when an individual has to start thinking about Tax Planning for Internationally Mobile Employees.  At Spherical Accountants it is our ambition to ensure that we speak simple language with our clients.  This enables our clients understand complex UK tax legislation and use it to their benefit.

Introduction

In some countries, domicile and residence status are used interchangeably and have the same meaning.  However, in the UK, domicile and residence status are two separate terms and each of these terms have very different meaning.  We advise employers and their Internationally Mobile Employees i.e., arrivers and leavers in correctly determining employees’ domicile and residence status.  We also help employers and internationally mobile employees with meeting their tax compliance obligations.

Domicile Status of Internationally Mobile Employees

There are three types of domicile:

  1. Domicile of origin
  2. Domicile of choice
  3. Domicile of dependence

However, an individual can also be deemed UK domiciled if certain conditions are met.

An individual normally acquires domicile of origin from their father at birth.  Simply put, an individual is UK domiciled if was born to a UK domiciled father.

Domicile of Choice of Internationally Mobile Employees

An individual who has a domicile of origin in the UK, has a legal capacity at the age of 16 to acquire a new domicile of choice.  However, to acquire a domicile of choice, an individual must leave the UK permanently and settle in another country or if living abroad already, intends to live abroad indefinitely.  The test that an individual has acquired a domicile of choice outside the UK is subjective and a tough one.  Over the years, HMRC have successfully won many cases where individuals had claimed to have acquired a domicile of choice.  However, with diligent tax planning, we can help our clients plan, prepare, and produce concrete evidence to prove that they have acquired a domicile of choice.  The significance of domicile of choice is relevant to Inheritance Tax (IHT) and can help high net worth individuals (HNWIs) save millions in UK IHT.

Until an individual attains the age of 16, their domicile follows the domicile of the person they are dependent on.  This is therefore called domicile of dependence.

Deemed Domicile of Internationally Mobile Employees

If an individual has been continuously UK resident for 15 tax year in the previous 20 tax years, deemed domicile is triggered from the 16th tax year.  Separately, individuals with domicile of origin in the UK who acquire domicile of choice or dependence outside the UK, become deemed UK domicile on their return to the UK.  These individuals are called Formerly Domiciled Residents (FDRs).

An individual’s domicile status determines the following:

  1. Whether or not they will pay tax on their worldwide income and gains in the UK
  2. Whether or not their non UK assets will be subject to inheritance tax in the UK

Therefore, determining the domicile status correctly is vital and at Spherical Accountants and Tax Advisers, we can help you determine your domicile status and if need and possible, plan a change in your domicile status.

Residence Status of Internationally Mobile Employees

Regardless of domicile status, an individual’s residence status is determined by the Statutory Residence Tests (SRTs).  These tests are as follows:

  1. Automatic Overseas Tests
  2. Automatic UK Tests
  3. Sufficient UK Ties

The automatic overseas and UK tests determine whether an individual is automatically non UK resident or automatically a UK resident.  These tests consider whether or not you were UK resident in the previous 3 years, your work pattern, days you spend in the UK in a tax year and whether or not you have home in the UK.

If an individual’s residence status cannot be determined by the automatic tests, individual’s ties with the UK are compared with the number of days they spend in the UK in a tax year.  The ties to consider are family, accommodation, work, 90-day and country tie.

We can help you determine your residence status in the tax year of arrival in the UK or in the tax year of departure from the UK.  We can also plan your arrival or departure date in a way that your non UK income and gains are not taxed in the UK.

Significance of Residence Status

The significance residence status is that an individual who is resident in the UK is required to report their worldwide income and gains in the UK.  However, non UK domiciled individuals can claim the remittance basis.  Claiming the remittance basis means that a non UK domiciled individual has a choice of not reporting their foreign income and gains in the UK.  However, remitting or transferring the income and gain from the tax year where the remittance basis was claimed, will give rise to the UK tax liability.

Also, the remittance basis charge comes at an additional cost of £30,000 or £60,000 after an individual has been UK resident for a certain number of years.  Consideration should also be given to the Split Year Treatment.

As it is evident from above how an individual’s domicile and residence status are inter-connected and therefore both must be diligently considered for individuals who arrive in the UK or leave from the UK, permanently or temporarily.  At Spherical Accountants and Tax Advisers, we help our clients plan their move to the UK or from the UK.

It is vital to understand that each individual’s and their family circumstances are unique, and therefore, this guide should not be used as a standard for Internationally Mobile Employees’ unique circumstances.

An additional one hour spent in the UK can make an individual a UK resident.  Over the years, we have successfully helped hundreds of clients by advising them on their domicile and residence status and by planning a date of their arrival in the UK or departure from the UK.

Tax Advice for Employers

It is equally important to establish the tax and National Insurance implications for the employer who send their employees to work abroad or receive employees on secondments from other countries.  We provide specialist tax advice to the employers to help them with their global mobility needs.

We encourage our clients to always seek professional advice as this can bring a long-term comfort to them and their families – it’s an investment worth making.  Our experts are happy to help Employers and Internationally Mobile Employees with their unique needs, therefore, please feel free to call us on 020 7859 4047 or via email at info@sphericalaccountants.co.uk.  Alternative, click here to book a 15-minue FREE telephone consultation with our Tax Director.

FAQs

What is an Internationally Mobile Employee?
Internationally mobile employee is someone who is a non-UK resident for tax purposes and performs some of their employment duties in the UK.
How can I become a non-UK resident Internationally Mobile Employee while working in the UK?
The Statutory Residence Tests are used to determine someone’s tax residence status in the UK. For Internationally Mobile Employees, generally the 3rd test of the Automatic Overseas Test must be met. This essentially means that to be a non-UK resident, an employee should not have more than 31 days break (other than holidays, sick leave) from overseas fulltime work, must not have more than 30 UK workdays and not spend more than 90 days in the UK in a tax year. However, there are other tests and factors that can also make an employee non-UK resident.
Do overseas employees pay UK tax?
Non-UK residents only pay UK tax if they have a UK source income and gains. If overseas employees do not have a UK source income or gains, there will be no UK tax to pay. UK residents usually have to pay tax on their worldwide income and gains in the UK.
Do Internationally Mobile Employees pay tax in the UK?
International Mobile Employees generally work between two or more countries. Such employees are only required to pay tax in the UK on their income for the days they work in the UK. Incidental duties such as meetings are ignored for his purpose.
What is section 690 Direction from HMRC?
Where an employee is required to perform some of their duties in the UK and some in another country, the employer or employer’s agent can apply for section 690 direction to operate PAYE on the UK earnings only. We regularly help and advise employers on obtaining section 690 direction.
Do I need to file a UK tax return if my employer has obtained a section 690 direction to operate my PAYE?
Yes, section 690 direction is only an estimate. A UK tax return is required to submit the final figures to HMRC.
What are my responsibilities as an employer if I employee Internationally Mobile employees?
As an employer, you must ensure that you are collecting the right amount of tax and National Insurance for an employee. This may involve you seeking professional advice prior to making a decision for your employees’ movements. Also, ensure that you and your employees meet the immigration and visa requirements.
What is a Double Tax Treaty?
Double Tax Treaty is an agreement between two countries. UK has double tax treaties with many countries in the world which essentially eliminates double taxation.
Is basis for deciding a tax residence status of an individual same in all the countries in the world?
No, each country has its own different rules which can vary significantly. Some countries such as the UK have statutory residence tests while others follow a different approach. It is important to check your tax residence status in each country you live or work in.
Can Spherical Accountants help employers and employees with tax advice for Internationally Mobile Employees?
Yes, we are experienced global provider of Internationally Mobile Employees services which means we have experience of advising major UK employers and employees from all over the world.

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