Under a longstanding arrangement set out in Appendix 6 of HMRC’s Employment Procedures manual (EP), employers can agree with their HMRC office to modify the operation of PAYE on the earnings of tax equalised employees coming from abroad to work in the UK. To make this Modified PAYE arrangement clearer and easier to use, we have made changes to Appendix 6. These changes reflect input from representatives of large employers and tax professionals experienced in dealing with the tax and National Insurance position of expatriate employees working in the UK.
Employers need to re-apply under the revised Modified PAYE procedures before 6 April 2007Employers who already operate Modified PAYE for tax equalised employees will need to re-apply under the revised procedures before 6 April 2007. Where an application has not been made under the revised procedures before 6 April 2007, any modified arrangement governed by an earlier version of EP Appendix 6 will be regarded as terminated with effect from the start of 2007-08. All new applications to operate Modified PAYE for expatriate employees should be made in accordance with the revised procedures.
By giving the undertakings in an application made under the revised EP Appendix 6 arrangement, employers will become entitled to apply for a completely new procedure: EP Appendix 7A.
This significantly reduces the administrative burdens that can arise over calculating and paying National Insurance in respect of tax equalised employees who come from abroad to work in the UK. To benefit from the new procedure, employers have to apply in advance - before the procedure is first due to start. The earliest date this will be available will be 6th April 2006.
Under this new procedure, employers authorised to apply the revised EP Appendix 6 procedures can, subject to certain conditions, enter into a formal agreement with HMRC that will allow them to account for NICs based on a best estimate of the earnings and then submit the correct figures on a “NIC Settlement Return” by 31st March following the year end, without incurring interest and penalties.
HMRC are scrapping an existing and little used simplified reporting procedure for NICs where employees work overseas and are replacing it with a new and easier system. This is set out in EP Appendix 7B.
Unlike EP Appendix 6 and EP Appendix 7A, there is no need for the employees to be tax equalised. The arrangement applies to employees who are:
The new rules operate in a very similar way to EP Appendix 7A and will apply from 6th April 2006 onwards.
Like EP Appendix 7A, employers must apply in advance of using the new system, but there will no longer be a need to sign up by November preceding the relevant tax year, as was the case with the old arrangements.
Under this new procedure, employers can, subject to certain conditions, enter into a formal agreement with HMRC that will allow them to account for NICs based on a best estimate of the earnings and then submit the correct figures on a “NIC Settlement Return” by 31st March following the year end, without incurring interest and penalties.
The text of the revised PAYE and new NICs procedures is available from today. An article in Tax Bulletin 81 provides additional information about these procedures.
