EP8251 - International employments: Part3: Subjects needing special care: How tax equalised arrangements work under EP Appendix 6

EP Appendix 6 describes a tax equalised arrangement between an employer and a foreign national employee working in the UK under which:

• the employee is entitled to a net amount of cash earnings and non-cash benefits

and

• the employer agrees to meet all of the UK income tax arising from the cash earnings and non-cash benefits.

The employer calculates PAYE based on the best estimate of all cash earnings and non-cash benefits for the year, grossed up for tax purposes. The actual earnings and benefits are reported on the employee’s self-assessment tax return. Any additional tax is paid following the submission of the return by 31 January following the end of the tax year.

In addition the employer normally provides the services of a professional advisor or an in-house specialist to deal with the tax equalised employee’s UK tax affairs. Help Sheet IR212 on tax equalisation provides advice to employers or professional advisors who are preparing self-assessment tax returns for tax equalised employees.

The application for modified PAYE for tax equalised employees is shown at EP/APP6.